Australia’s life insurance sector is experiencing a notable shift as mental health conditions become the leading cause of total and permanent disability (TPD) claims.
Recent figures from the Council of Australian Life Insurers (CALI) showed that mental health now accounts for nearly one-third of all TPD claims paid out.
This trend signals a significant change in the factors driving Australians out of the workforce on a permanent basis.
In 2024, life insurers disbursed over $2.2 billion in retail claims related to mental health, an amount that has nearly doubled compared to five years ago.
Income protection claims linked to mental health also remain substantial, with $887 million paid out in 2024 alone.
The data revealed a marked increase in claims among younger Australians, particularly those in their 30s, where the rate of TPD claims for mental health has risen by more than 700% over the past decade.
CALI CEO Christine Cupitt noted that the sector is seeing more Australians, especially younger individuals, exit the workforce permanently due to mental health conditions.
“Australia is reaching a tipping point. The entire safety net, not just life insurance, is under pressure,” she said. “Every year, we see a growing number of people, particularly younger Australians, leaving the workforce for good due to mental health conditions.”
Cupitt said that while lump sum TPD payments are designed to provide financial relief, they may not guarantee lasting security for younger claimants who have many working years ahead.
Cupitt pointed out that the existing framework for TPD claims may not always reflect the potential for recovery.
“This should not be the story of young Australians experiencing mental ill-health. People are being left with little choice but to label themselves totally and permanently disabled, even where the medical evidence shows there is a chance they could return to work,” she said.
She added that the industry is evaluating how to better support customers, as the current approach may not be sustainable in the face of rising mental health claims.
“Insurers will always be there for the Australians who are most deeply affected by mental ill health, but we are having to rethink how we better serve customers in the decades ahead,” Cupitt said.
Separate research released by CALI in April 2025 indicated a shift in how Australians seek support when unable to work due to mental ill health.
Nearly 40% of respondents stated they would rely on government assistance, rather than family or social networks, if they were unable to work. This marks a change in behaviour, likely influenced by increasing living costs and broader economic pressures.
The same research highlighted declining engagement with life insurance products. Seventy-one percent of Australians surveyed expressed concern that economic conditions could make it difficult to obtain or keep life insurance.
Affordability was identified as the main barrier by 62% of respondents, with this issue most pronounced among those earning less than $100,000 annually.
The data also showed a gender gap, with 53% of women saying they could not afford coverage, compared to 33% of men.
