Life Insurance Code review puts fairness and mental health cover in focus

For business partners who rely on life insurance to protect ownership interests, debt obligations or succession plans, the review is more than a compliance story. Partnership life insurance is often designed to provide funding if a partner dies, becomes terminally ill or, depending on the structure, is unable to continue working. In those circumstances, delays, unclear definitions or disputed exclusions can create financial pressure at exactly the wrong time.

The headline issue is mental health. The report recommends that the Code include a prominent commitment to supporting customers experiencing mental health conditions. It also recommends that standard form policies should not completely exclude mental health cover. However, it leaves room for insurers to use carefully justified limitations, provided they are backed by actuarial or statistical evidence, explained clearly, and reviewed at least every three years.

This is an important balance. Insurers have been under pressure from rising mental health-related claims, while consumers and advocates remain concerned that broad exclusions can make cover less meaningful. For policyholders, the practical takeaway is simple: do not assume all life insurance benefits respond in the same way. Mental health wording, waiting periods, exclusions, definitions and claims evidence requirements can differ materially between policies.

The review also points to broader improvements across claims handling, support for customers experiencing vulnerability, financial hardship, family and domestic violence, First Nations customer engagement, complaints, advertising, communications, medical definitions, genetic testing and Code enforceability. If adopted, these changes could make the insurance journey easier to navigate, but they may also lead insurers to revisit product design and disclosure documents.

For partnerships, now is a sensible time to review whether existing cover still reflects the current value of the business, outstanding liabilities and buy-sell arrangements. Partners should also estimate an appropriate sum insured rather than relying on an old figure that no longer matches the business. Where policy terms are complex, seeking professional assistance can help identify gaps before a claim event occurs.

The Council of Australian Life Insurers is expected to provide an initial industry response by 30 September 2026. Until then, the recommendations should be viewed as a roadmap rather than final law. Even so, they highlight a clear direction of travel: Australians want life insurance that is transparent, sustainable and fair when families and businesses need it most.