Mental health sufferers pay more for life insurance

The Money and Mental Health Policy Institute has found examples where customers were denied income protection payouts due to mental health problems, charged higher prices for life cover which saw them go partly uninsured, and denied life cover outright.

In a statement yesterday (February 8), the charity said life insurers could be discriminating against people with mental health problems by failing to base their decisions on accurate data.

Chief executive of the charity, Helen Undy, said: "Across many types of insurance, people with mental health problems are facing really poor outcomes.

"It’s hard to believe that these extortionate premiums accurately reflect the risk to insurers, especially when people who have been able to manage their condition for years are still being charged significantly more.

"There is a real sense among people with mental health problems that they’re not being treated fairly - many even say they feel discriminated against by insurers."

Undy said "it’s about time" the Financial Conduct Authority took decisive action to show life insurers that protecting their commercial interests does not put them above the law.

I claimed on my income protection insurance. I was denied, because of my mental health...This eventually led to me losing the home I'd bought. I'm now homeless.Life insurance policyholder

Earlier this week, the FCA sent life insurers a letter outlining their responsibilities under the incoming consumer duty.

The regulator said firms need to consider the diverse needs of their customers – including those with characteristics of vulnerability – at every stage of the product or service lifecycle.

In its research, the Money and Mental Health Policy Institute spoke to 292 people with lived experience of mental health problems about life, motor and home insurance.

Across both general insurance and protection, the charity identified a common theme of higher premiums and a higher likelihood of cover being denied.

"I claimed on my income protection insurance. I was denied, because of my mental health," one person said.

Another said: "I had to declare [my mental health problem] as part of getting income protection and life insurance, in a medical interview. It was really nerve wracking and I was turned down by a number of providers due to it, even though it is well managed and has been for a number of years and does not stop me from working."

We are only covered for a percentage of the mortgage cost if we pass away during the mortgage term.Life insurance policyholder

One person surveyed said they were left with only partial cover due to the price of their life insurance going up on the basis of their mental health history.

"When we moved house and took out a bigger mortgage, we could not increase the mortgage life cover due to my history of mental illness," they said.

"We are therefore only covered for a percentage of the mortgage cost if we pass away during the mortgage term."

In one particular case, a person had developed chronic fatigue syndrome which meant they could no longer work.

They were denied income protection insurance because the insurer stated that any 'fatigue' condition is considered to be related to depression and anxiety, rather than related to things like post-Covid or viral infections.

For another person who had managed to take out an income protection policy, the were later not able to claim on it because of their mental health.

"This eventually led to me losing the home I'd bought. I'm now homeless," the person explained.

By law, insurers are allowed to treat people with disabilities - including mental health conditions - differently when it comes to pricing decisions and what cover is offered, the charity explained.

But that is only if these decisions are backed up by accurate and up-to-date information - for instance, research on how a given condition affects your odds of being hospitalised.

Given the lack of transparency from the industry about what data it uses, the charity is concerned that some firms could actually be breaking the law over pricing decisions for people with mental health problems. 

An ABI spokesperson said: “No one should face a barrier to accessing financial services and our members recognise the importance of being able to offer accessible, affordable cover to as many people as possible. Clear communication and transparency around decision making is crucial which is why we launched the Mental Health Standards to improve support for people with mental health conditions when applying for travel, health or protection insurance.

"Whilst pricing is a matter for individual firms to decide, the standards include the need for underwriting approaches to be reviewed regularly using up-to-date data and credible evidence and set out how insurers can explain decisions clearly and provide more options for customers to communicate with them.

"If anyone is struggling to obtain cover, specialist providers are available to help.”

ruby.hinchliffe@ft.com