Life Insurance Code of Practice Review 2026: What Australians Must Know About Mental Health Cover and Claims

Australia's life insurance sector is undergoing its most significant regulatory review in years. The independent review of the Life Insurance Code of Practice, led by Peter Kell and concluded on 30 June 2026, has produced 85 recommendations that will reshape how life insurers treat policyholders — from mental health exclusions to claims handling timelines and funeral insurance protections. For Australians reviewing their personal or business life insurance cover, understanding these changes and working with a qualified insurance broker has never been more important.

Understanding the Life Insurance Code of Practice Review

The Life Insurance Code of Practice (the Life Code) is the industry's self-regulatory framework, setting minimum standards for how life insurers must treat customers. The 2026 independent review, led by consumer advocate Peter Kell, was commissioned to assess whether the Code remains fit for purpose in a rapidly changing environment.

The final report, released on 30 June 2026, contains 85 recommendations spanning mental health coverage, claims handling, funeral insurance, contractual enforceability, and protections for vulnerable customers. The Council of Australian Life Insurers (CALI) has committed to releasing an industry response by 30 September 2026, with implementation of accepted changes potentially occurring toward the end of 2027.

While the recommendations are currently voluntary and carry no legal force until adopted by the industry, they signal the direction of travel for the sector and have immediate implications for consumers comparing life insurance products today.

Key Changes Proposed by the 2026 Review

The 85 recommendations cover a broad range of consumer protections. These are the most significant changes that Australians and their insurance brokers need to understand.

Mental Health Exclusions

Mental health was identified as the dominant theme of the review. The final report recommends prohibiting "blanket" mental health exclusions in standard form retail life insurance products. This is a significant shift from current practice, where many policies contain broad exclusions that deny claims for any condition with a mental health component.

However, the review does not recommend eliminating all limitations on mental health cover. Insurers will be permitted to apply narrower "sustainable design features" that limit — rather than eliminate — cover, provided these limitations are backed by actuarial or statistical data and are reviewed at least every three years. CALI has been directed to lead a collaborative process with stakeholders, including the Australian Human Rights Commission and consumer groups, to develop guidance on designing and explaining these limitations clearly to policyholders.

Claims Handling Timelines

The review proposes specific timeframes for processing claims, addressing longstanding consumer complaints about delays. Reopened income-related claims must be reassessed within one month, and lump sum claims within three months. The report also recommends capping insurer surveillance of claimants at a single four-month period, addressing concerns about intrusive and prolonged monitoring of people making legitimate claims.

Funeral Insurance Protections

The review recommends a "premium guarantee" for funeral insurance products, ensuring that payouts equal the higher of the insured sum or the cumulative premiums paid. This addresses a well-documented problem where long-term policyholders — particularly older Australians — pay more in premiums over time than the policy would ever pay out. The report also recommends that premium refunds be available if a policy lapses after two or more years of payments.

Contractual Enforceability

One of the most debated recommendations is whether the Life Code should become contractually enforceable — meaning policyholders could take legal action for breaches of the Code, not just complain to AFCA. The review recommends that this transition be deferred to the next five-year review cycle, despite broad stakeholder support including from the Australian Financial Complaints Authority (AFCA). This contrasts with the General Insurance Code of Practice, which is currently moving toward immediate legal enforceability.

What This Means When Choosing Life Insurance in 2026

The 2026 review creates both opportunities and complexity for Australians shopping for life insurance. Here is what to consider when reviewing your cover.

• Review existing mental health exclusions — If your current policy contains a blanket mental health exclusion, ask your insurance broker whether alternative products with narrower, more specific limitations are available. The market is evolving, and better options may exist.
• Understand what "sustainable design features" mean — As insurers move away from blanket exclusions, the specific limitations they apply will vary. An insurance broker can help you compare the fine print across multiple insurers to find the most comprehensive cover for your circumstances.
• Check claims handling standards — When comparing policies, ask about the insurer's average claims processing times and their track record with AFCA. The proposed timeframes in the review are not yet mandatory, so current performance varies significantly between insurers.
• Assess funeral insurance carefully — If you or a family member holds a funeral insurance policy, calculate the total premiums paid to date against the insured sum. The premium guarantee recommendation, if adopted, would protect future policyholders — but existing policies may not be retrospectively amended.
• Consider the difference between retail and group cover — The Life Code review primarily addresses retail life insurance products. Group life insurance held through superannuation funds is subject to separate APRA and ASIC oversight, and the opt-in requirements introduced in July 2026 for inactive accounts add another layer of complexity.
• Seek independent advice — An insurance broker who is not tied to a single insurer can compare products across the market and explain how the evolving regulatory landscape affects your specific situation.

Common Mistakes Australians Make with Life Insurance

Even with a strong regulatory framework, many Australians make avoidable errors when purchasing or maintaining life insurance. These are the most common pitfalls.

• Relying solely on superannuation default cover — Default life insurance inside superannuation is a valuable safety net, but it is rarely sufficient for most Australians' needs. The level of cover is typically based on age and occupation, not your actual financial obligations such as a mortgage, business debts, or dependants' living costs.
• Not disclosing pre-existing conditions accurately — Failing to disclose a pre-existing condition at the time of application can result in a claim being denied, even if the condition is unrelated to the claim. An insurance broker can guide you through the disclosure process to ensure your application is accurate and complete.
• Choosing the cheapest premium without comparing exclusions — A lower premium often reflects broader exclusions or a higher definition of "total and permanent disability." Comparing policies on price alone without understanding the exclusions can leave you significantly underinsured.
• Not reviewing cover after major life events — Marriage, divorce, the birth of a child, a new mortgage, or starting a business all change your insurance needs. Many Australians set and forget their life insurance, leaving significant gaps in cover.
• Overlooking income protection insurance — Life insurance pays a lump sum on death or total and permanent disability, but income protection insurance replaces your income if you are temporarily unable to work due to illness or injury. Both types of cover serve different purposes and are often both necessary.

Australian Regulatory Context

Life insurance in Australia is regulated by multiple bodies, each with a distinct role in protecting consumers.

The Australian Securities and Investments Commission (ASIC) regulates the conduct of life insurers and insurance brokers, including licensing, disclosure obligations, and claims handling. ASIC has the power to take enforcement action against insurers who engage in unfair conduct or fail to meet their obligations under the Corporations Act 2001 and the Insurance Contracts Act 1984.

The Australian Prudential Regulation Authority (APRA) oversees the financial soundness of life insurers, ensuring they hold sufficient capital to meet their obligations to policyholders. APRA's prudential standards set minimum requirements for reserving, governance, and risk management.

The Australian Financial Complaints Authority (AFCA) provides a free, independent dispute resolution service for consumers who have complaints about their life insurer or insurance broker. AFCA can award compensation and direct insurers to pay claims that have been wrongly denied.

Insurance brokers must hold an Australian Financial Services (AFS) licence and comply with the best interests duty when providing personal advice. They are also required to disclose any commissions or remuneration they receive from insurers, ensuring transparency in the advice process.

Questions to Ask Your Insurance Broker

When engaging an insurance broker to review or arrange life insurance cover, these questions will help you assess their expertise and the suitability of the products they recommend.

• Are you an authorised representative of an AFS licensee, and can you advise across multiple insurers?
• How does the mental health exclusion in this policy compare to other products on the market?
• What is this insurer's claims acceptance rate and average claims processing time?
• How much life insurance, income protection, and total and permanent disability cover do I actually need given my financial obligations?
• What commissions or fees do you receive, and how does this affect your product recommendations?
• How will the proposed changes from the 2026 Life Code review affect my existing policy?
• Should I hold my life insurance inside or outside superannuation, and what are the tax implications of each approach?

How MyMoney® Can Help

Choosing the right life insurance in a changing regulatory environment requires expert guidance. MyMoney® connects Australians with qualified, licensed insurance brokers who can compare products across multiple insurers and provide advice tailored to your specific circumstances.

To get started, Post a Brief on MyMoney® describing your insurance needs and receive competing proposals from experienced insurance brokers. You can review their qualifications, insurer panels, and approach before making any commitment.

Alternatively, Browse Insurance Brokers on our platform to find a professional who can help you navigate the evolving life insurance landscape and ensure your cover is comprehensive, competitive, and compliant with the latest regulatory standards.