The Coronavirus and Your Life Insurance

Russell Cain Updated: 30 March 2020

In December 2019, the Chinese authorities detected the outbreak of the Coronavirus, which causes the disease Covid-19. The World Health Organization (WHO) declared the disease a pandemic on 11 March 2020, as the illness reached over 110 countries and territories across the globe.

Many Australians are concerned whether their life insurance will pay out should they pass away due to contracting the Coronavirus.

If you have an inforce Retail life insurance policy and adhere to all the terms and conditions set out in your PDS, there is typically no exclusions on claims resulting from the Coronavirus.

Will life insurance payout for the Coronavirus?

Generally, there are no exclusions for pandemics on a standard Retail life insurance policy that’s already in place. Your loved ones will be eligible to receive your death benefit if you pass away from a pandemic illness, like Covid-19, if you have fulfilled your disclosure obligations and meet the terms of your cover.

However, select group insurers have exclusions on pandemic-related deaths, illnesses and loss of income. Please check your insurance held inside superannuation. If you’re uncertain of your coverage for coronavirus, please give our team a call on 1300 135 205.

Applying for life cover during the outbreak

If you’re a new customer applying for a life insurance policy during the pandemic, you’ll need to comply with your Duty of Disclosure, including:

  1. Disclosing if you have or had the Covid-19 virus or any flu-like symptoms, and
  2. Your planned/proposed travel plans. For example, if you’ve recently travelled to or are planning to go to a high-risk country. As part of the application process, we see select insurers also asking about your past travel plans to specific regions, such as China, Italy and Iran.

Possible underwriting outcomes after fully complying with your duty of disclosure:

Take note: Each life insurance company has its own underwriting guidelines and will thus have varied responses to life insurance applications during the outbreak. You might want to shop around and compare plans from major life insurance brands in Australia.

Covid-19 and TPD, Trauma cover and Income Protection

While death due to the Coronavirus is a fear we all share, a healthy person is generally at a higher risk of potentially losing their income due to quarantine or temporary disability. Let’s look at the effect Covid-19 might have on TPD, Trauma Cover and Income Protection Insurance.

According to an article published by Riskino on 10 March 2020, Retail life insurers including AMP, MLC, BT, AIA, ClearView, TAL and MetLife responded that clients with existing policies that meet the eligibility criteria of a valid claim, as per their insurance terms and conditions, will be covered for TPD, Trauma and Income Protection insurance.

Is the Coronavirus a specified critical illness in a Trauma insurance policy?

Most Retail trauma insurance policies currently in the market do not specifically list Covid-19 as a critical illness. However, it’s best to consult your relevant product disclosure statement and insurer to be sure.

Will income protection payout if you’re unable to work due to the Coronavirus?

Generally, there are no Coronavirus exclusions under a typical Retail income protection policy, so long as you meet the policy terms a condition, which vary between insurers.

Total disablement solely due to a sickness or injury in the context of an Income Protection policy means that you are:

  • Unable to perform one or more important income producing duties of your occupation,
  • Under the regular care of a medical practitioner,
  • Unable to work for longer than your waiting period, following the advice of a medical practitioner,
  • Not working at all, whether paid or unpaid.

Are you eligible for a TPD benefit when diagnosed with Covid-19?

Generally, a Retail policy that covers total and permanent disablement would not have a specific exclusion for Covid-19. However, you must meet the policy terms and conditions to be eligible for the lump-sum payment as per your product disclosure statement.

Total and permanent disablement cover with an Any or Own occupation generally refers to:

  1. You being continually absent from employment solely because of an injury or illness,
  2. for at least three consecutive months, and
  3. your medical practitioner provided you with all reasonable and usual treatment, including rehabilitation for the sickness or injury.

Your life insurance company will generally pay out a TPD lump sum benefit if it believes that after the three consecutive months and considering all your medical information and required documentation, you are:

Own Occupation: Incapacitated to such an extent that you are unlikely to ever again engage in your Own occupation.

Any Occupation: Incapacitated to such an extent that you are unlikely to ever work in Any business, profession or occupation, for which you are reasonably suited by education, training or experience.

Further information from some of the select insurers on the Coronavirus

Frequently asked questions and answers

  • Can you switch life insurance policies during the pandemic?

    If you currently have an existing life insurance policy in place but want to switch companies due to better price or benefits, you might be wondering if you’ll be covered for the Coronavirus.

    Currently, you might be able to switch insurers so long as you comply with all the general terms and conditions of your policy, including your duty of disclosure by providing the insurer with all the information required on your application. For Covid-19 specifically, be sure to disclose:

    • If you have or had the Covid-19 virus or any flu-like symptoms,
    • If you have any plans to travel or work outside of Australia, specifically in a DFAT 4 region,
    • Select insurers may ask if, since 1 January 2020, you have visited any of the high-risk countries, for example, China, Italy, and/or other DFAT 4 regions,
    • Been near someone who has recently been to a high-risk country or you suspect of being exposed to the Coronavirus.

    The insurer will assess your application as they normally would and depending on your responses to the applications questions, your policy could be issued standard rates if you present no elevated risk. However, if there are any elevated risks, applications will be assessed on a case by case basis.

    Take note: If you are travelling to a high-risk country, your application will generally be declined.

    Contact us if you’re considering switching insurers and ask about Covid-19.

  • Can an insurer add an exclusion to an existing policy that’s already in place?

    Existing Retail life insurance customers in Australia should not be concerned, as the terms and conditions of a Retail contract can’t be downgraded for a policy that is already in force.

    However, if you have a Direct life insurance policy or bought life cover through Superannuation, contact your insurer and review your PDS for clarification regarding possible Covid-19 exclusions.

  • What if you’re quarantined and can’t get to work?

    Generally, if a sickness or accident prevents you from performing at least one important income-producing duty, for longer than your waiting period, your income protection benefit will payout.

    However, if you are quarantined as a precaution, you generally will not meet the above policy terms and conditions to be eligible for a claim. It would be best to consult your PDS and insurer directly.

  • How will my income protection benefits be calculated if I can’t work because of Corona lockdown or being off work?

    If you have an Indemnity income protection policy, insurers generally review what you’ve earned in the 12 consecutive months before sickness or injury has left you unable to work for longer than your waiting period.

    Thus, if you stopped working for any amount of time within those 12 months before disablement, you may potentially receive a lesser monthly benefit should you need to claim income protection insurance.

    Case Study

    Eugene has become disabled and can’t work for longer than his waiting period. His monthly benefit would be the lesser of 75% of his pre disablement income or insured monthly benefit. Generally, Eugene’s monthly benefit would be calculated by multiplying his total income received over the 12 months prior to disablement with 75% and then dividing that figure by 12 months. For example: ($60,000 X 75%) ÷ 12 months = $3,750 monthly benefit.

    However, during the 12 months before disablement, Eugene was not able to earn an income for 3 months due to his employer having to shut down. Eugene thus stopped receiving a salary for a period due to the Covid-19 restrictions imposed on businesses.

    After the shutdown, Eugene returned to work, but unfortunately fell ill and was unable to work for longer than his income protection waiting period. As a result of his time off work the 12 months income, he earned before disablement, only came to $45,000. Eugene’s monthly benefit could be substantially reduced. For example, ($45,000 X 75%) ÷ 12 months = $2,813 monthly benefit.

    Possible alternative

    If you’re in the process of choosing Indemnity income protection, you might want to consider a policy that offers more flexibility. Select insurers provide policies that consider your best 12 consecutive months income in the last 2 or 3 years, which could give you more certainty of your monthly benefits.

    If you stop working for a period and have an indemnity income protection policy, you should consider reviewing your sums insured to ensure you are not overpaying on your premiums. Then, adjust again once you return back to work. However, any increases will need to be underwritten.

  • Will your insurance inside super cover you for Covid-19?

    On 29 March 2020, The Australian Financial Review reported that select super funds would retain their exclusions on insurance for pandemics, like the Coronavirus. Meaning, a claim for death, illness or lost income due to Covid-19 may not be valid.

    Currently, QSuper, Unisuper, NGS Super and TWUSuper are amongst the funds to retain pandemic exclusion clauses. Please contact your superannuation for details regarding how the pandemic exclusion is applied to your insurance.

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