Australians are making more TPD insurance claims due to mental health conditions than ever before, significantly affecting the cost and sustainability of life insurance. Originally intended as a safeguard against physical disability, these policies are now overwhelmed by psychological claims, which they were not designed to manage. As claims rise, premiums have increased by nearly 40% in four years, raising concerns that cover might soon become out of reach for many.
Disability insurance used to focus on physical injuries, but with mental health issues rising among younger generations, particularly Millennials and Gen Z, the industry is being forced to adapt. The average TPD claim has risen to $803,000, and insurers are tightening eligibility as costs grow. Mental illness has accounted for 80% of TPD claim growth over the past decade, and the trend continues to climb.
One report revealed that the rate of mental health claims among people in their 30s rose by 730% over a 10-year period. White-collar workers are more likely than blue-collar workers to make TPD claims related to mental health. Mental illness now represents more than one-third of all TPD claims, a sharp rise compared to a decade ago. In response, insurers are increasing premiums and applying stricter assessments for applicants with any history of mental health conditions.
The industry is concerned that if premiums continue to climb, life insurance, including essential TPD cover, could become as unaffordable as home policies in flood-prone areas. Experts are calling for early intervention, more effective product design and stronger education on mental health. Some advisers suggest reducing policy extras or shortening the length of coverage to keep premiums lower but agree that TPD insurance remains financially vital for those affected.
Australians in their 30s and 40s face mounting pressure at work, at home and in their finances, along with rising social demands, all contributing to growing mental stress. Constant connectivity, workplace expectations and financial strain are fuelling the problem. The insurance industry and government are now looking at potential reforms to make life insurance products better suited to modern mental health challenges.
