Overview

If you already have a medical condition, you may assume that getting disability insurance with a pre-existing condition will be difficult or even impossible. That isn’t necessarily the case.

A past injury, chronic illness or mental health history can affect the cover an insurer is willing to offer, but it does not automatically mean you will be refused. The outcome will depend on the type of insurance, your medical history, how your condition affects you now and the insurer’s underwriting rules. It is also important to check any insurance you already hold before applying for new cover or changing super funds.

What is disability insurance?

“Disability insurance” is a broad term. In Australia, it commonly includes Total and Permanent Disability (TPD) insurance and income protection insurance. You may hold these types of insurance through superannuation or under a policy arranged outside super.

Total and Permanent Disability (TPD) insurance generally pays a lump sum if illness or injury leaves you totally and permanently disabled and you satisfy the definition in your policy. Depending on the policy, this may be based on your ability to work or, in some cases, your ability to perform certain everyday activities.

Income protection insurance pays part of your income if illness or injury prevents you from working for a period of time. Policies have a waiting period before benefits begin and a benefit period that determines how long payments may continue.

How a pre-existing condition affects a disability insurance application

When you apply for individually underwritten insurance, the insurer will usually ask questions about matters such as your health, occupation, lifestyle and medical history. Depending on your circumstances, the insurer may:

• offer cover on standard terms
• offer cover with a higher premium
• exclude claims relating to a particular medical condition
• postpone a decision until further medical information is available or your condition has been stable for a period
• decline the application.

For example, a person with a history of back problems might be offered insurance that excludes claims arising from a particular back condition. They may still be covered for other unrelated illnesses or injuries, subject to the terms of the policy.

Insurance through super can be different

Insurance held through superannuation often works differently from insurance you apply for directly. Many super funds provide eligible members with a default level of life and TPD insurance without requiring medical checks. Because default cover can often be provided without medical checks, insurance through super may be particularly relevant for people seeking disability insurance with a pre-existing condition that could affect an application for cover elsewhere. Some funds also provide default income protection.

However, automatic insurance is subject to eligibility rules. Generally, insurance through super does not start automatically if you are a new member under 25 or your balance has not yet reached a minimum level set by law, although exceptions apply and you can usually ask your fund to provide cover.

The terms of group insurance also vary between funds. Depending on the policy, there may be pre-existing-condition rules, limited-cover provisions or requirements relating to whether you were actively at work when your cover began. If you apply for additional insurance above your fund’s default level, you will also usually need to provide health information.

Be careful before consolidating your super

Before consolidating super accounts, check:

• what insurance each account contains
• how much cover you have
• the policy definitions and exclusions
• when the cover will end
• whether you could replace the cover if you closed the account.

Insurance in an inactive super account can also be cancelled. As a general rule, super funds must cancel insurance where an account has received no contributions for at least 16 months unless you elect to keep the cover.

Your responsibilities when applying for insurance

For consumer insurance contracts, the Insurance Contracts Act 1984 sets out a duty to take reasonable care not to make a misrepresentation to the insurer. In practical terms, you should answer the insurer’s questions carefully, accurately and honestly. If you cannot remember part of your medical history, don’t guess. Ask for clarification where necessary and consider checking your medical records or speaking with your doctor.

Incorrect information can have serious consequences later. Depending on the circumstances, an insurer may be able to alter the policy, reduce a benefit or avoid the policy.

What should you do if you have an existing medical condition?

What if you are already unable to work?

If a medical condition has already left you unable to work, obtaining new disability cover for that condition is likely to be difficult and may not be available. Before looking for new insurance, check any cover you already hold.

Many Australians hold TPD or income protection insurance through super without being fully aware of the cover. You may also have insurance through an old super account or a previous employer arrangement. You can search for lost super to find accounts you may have forgotten.

If illness or injury has affected your ability to work, checking your existing insurance should generally come before looking for new cover. Moneysmart’s guide to making a life insurance claim explains the general steps involved. If you have already had a TPD claim approved, our guide to Post-TPD Financial Advice explains some of the financial decisions that may follow.

How HFI can help

Having a pre-existing medical condition does not automatically rule out disability insurance, but it can make choosing and changing cover more complicated. This is also an area where cancelling the wrong policy or closing the wrong super account can have consequences that are difficult to reverse. HFI can review the insurance you already hold, help you understand the terms and exclusions, investigate insurance options and consider how any changes fit with your broader financial position.