Life insurers in Australia have been told they may build product features that limit, though not eliminate, cover for mental health conditions in standard form policies, under the final report of the independent review of the Life Insurance Code of Practice released on June 30, 2026. Reviewer Peter Kell reached the position after commissioning legal advice on the Disability Discrimination Act 1992, on what the review itself describes as the most contested issue among its 85 recommendations.
The final report distinguishes between two categories of product design. A complete exclusion of mental health cover within a standard form contract, including policy structures that let a customer opt out of mental health cover altogether, would be banned under the code irrespective of whether such an exclusion could satisfy the Disability Discrimination Act. Beyond that boundary, the report stops short of recommending a ban on features that merely limit mental health cover, on condition that any such feature aligns with the act, other code provisions and guidance the sector has not yet produced.
That guidance obligation is not minor. Under the recommendation, any standard form limitation would require documented actuarial or statistical support and a review cycle of at least three years. Citing advice from barrister Stephen Walsh, the report states that insurers can build in exclusions or limits for mental health conditions where they satisfy the act’s actuarial, statistical, or unjustifiable hardship exemptions, though a blanket exclusion covering every mental health condition would be harder to defend than a narrower, condition-specific limit.
This is not a settled matter for all parties. The Financial Rights Legal Centre (FRLC) and the Justice and Equity Centre (JEC), formerly the Public Interest Advocacy Centre, told the review it is “highly unlikely that life insurers are able to use standard forms to discriminate on the basis of mental health issues,” pressing for greater weight to be placed on an individual’s particular circumstances than other submissions had assumed. Kell’s report does not resolve that disagreement; it states the Walsh advice was sought to inform the recommendations rather than to settle the underlying legal question definitively.
Responsibility for the next phase now sits with the industry. CALI’s own supplementary submission in March 2026 was what prompted the interim report to pose additional questions on this issue in the first place, and the final report responds by directing CALI to lead a process with the Australian Human Rights Commission (AHRC), consumer groups, mental health organisations, legal representatives, the Life Code Compliance Committee (LCCC), the Australian Financial Complaints Authority (AFCA), and regulators to establish how cover limitations should be designed, explained and reviewed. The report concedes that "once and for all" guidance on the issue is unlikely to emerge from this process.
Two distinct regulatory pressures sit behind the recommendation, addressing different parts of the same affordability problem. On claims sustainability, Australian Prudential Regulation Authority (APRA) executive director Jane Magill told the All Actuaries Summit on May 27, 2026, that “a solution will not come from waiting for perfect conditions or pulling one lever. It will require disciplined risk management and coordinated action across claims, product design and stakeholder alignment,” according to the report. Separately, on pricing transparency, the report notes that a joint APRA and Australian Securities and Investments Commission (ASIC) review of life insurance premiums found regulators expect insurers to apply duration-based pricing only where it reflects an actual reduction in risk, and to explain more clearly upfront how temporary discounts unwind over the life of a policy.
The report also proposes a structural change to how the code functions: embedding its commitments into new customer contracts so they carry contractual force, requiring removal of the clause that currently blocks this. Kell’s report frames this as bringing the code into line with the current or proposed direction in banking and general insurance, noting broad stakeholder support for the change despite CALI’s objections, which centre on the guaranteed renewable structure of life products, the risk of a more legalistic code, and the code’s comparative immaturity against other financial services codes.
The report endorses enforceability in principle but defers its timing, recommending that CALI begin that process only once the mental health guidance work concludes, and that it be folded into the terms of reference for the next code review rather than pursued immediately. For legal and compliance teams, the direction of travel is away from voluntary commitments and toward contractually binding ones, even with the implementation date left open.
A further recommendation introduces a “premium guarantee” for funeral insurance, under which the payout would equal whichever is higher: the insured sum or the cumulative premiums paid, with premiums refunded if a policy lapses after two or more years held. The reviewer also proposes lowering the minimum age for funeral insurance sales from under 50, as floated in the interim report, to under 40, reasoning that the premium guarantee alters the case for the original threshold.
On claims, reopened income-related claims would need reassessment within one month and lump sum claims within three months, while insurer surveillance of a claimant would generally be capped at one four-month period. Additional recommendations touch on support for customers facing financial hardship or family and domestic violence, engagement with First Nations customers, complaints processes, medical definitions used in underwriting, and the powers of the LCCC. The report recommends the code undergo review every five years from here.
CALI said in a same-day media release that it would weigh the recommendations and issue an initial response by September 30, 2026. Chief executive Christine Cupitt said the focus “will be to ensure any changes to the Life Code strengthen customer protections and are designed and implemented in a way that supports the long-term affordability and accessibility of life insurance for Australians.” The release did not engage with the mental health design recommendation directly, nor set out a timeline for the stakeholder process the report assigns to CALI.
Kell, for his part, said: “I look forward to the response from CALI and its members to the recommendations. A revised Code that enhances industry commitments and supports good consumer outcomes should be developed as soon as practicable.”
