Why TPD Claims are so difficult

Hi everyone

If you’re reading this, welcome to my first edition of ‘latest happenings’ for insurance claims.

Every month I will write a bit of an update on a certain topic, to help you understand the wonderful world of personal insurance claims (sarcasm intended)… April 2025’s edition is all about ‘Why TPD claims are so difficult due to the LIF insurance legislation’. Interested to know more? Read on…

If you, or anyone you know, have ever tried to make an insurance claim, especially for a complex Total and Permanent Disability policy, you will know it can be a very difficult process.

Most of my TPD claims clients have an element of mental health issues in their reasons for being unable to work… as my former clients will know, I have a bit of a sense of humour and joke about this – eg. “if you didn’t have a mental health problem before you started the claims process, you will by the end of it”. That’s why having a claims advocate can help take a lot of this burden away from you (and on to me)… I spend a lot of my time fighting with insurance companies, which isn’t great for my own mental health, but very rewarding when I get to call my grateful clients and let them know their claims have been approved. In the last 18 months, I have got around $7 million dollars paid to my clients.

So, many of you will be wondering…. Why is it so hard? Was it always this way? My view on this is as follows.

As someone who has worked in the financial services industry since 2001, and spent 20 years as a financial planner, I can tell you it wasn’t always this way.

The real problem started when the dear Liberal government decided to reform the insurance industry with their ‘Life Insurance Framework’ legislation in January 2018. They thought financial advisers got paid too much commission for helping their clients put insurance in place (even though they had no idea how much work it was). So, in their ‘wisdom’ (more sarcasm), they cut the upfront fees and also made a ‘clawback’ rule saying if clients cancelled their insurances within 2 years of taking it out, then advisers would have to pay back commission, or some part of it, they had been paid. 

The government thought this would help clients, but it actually had the opposite effect. It had been the practice that most advisers didn’t charge clients for insurance advice, as they covered the costs of their meetings, research and getting the advice document written up (often by external paraplanners they had to pay) and implemented from the upfront commission they received. The resulting cut to upfront commissions meant that advisers had to ask clients to start paying for insurance advice (which they never had before, and didn’t really want to have to do now). So, the result was less advisers bothering to put insurance policies in place as it was time consuming and didn’t cover their costs if the clients were unwilling to pay, plus they might have to pay back commission if their clients cancelled their policies within two years (imagine if a real estate agent had to pay back their commission if a former client sold their house within two years!).

Clients also stopped getting insurance because they didn’t want to pay, or worse, they bought sub quality policies off the TV or by trying to do it themselves and getting the wrong covers, features and amounts etc.

The result was devastating on insurance companies, who had to substantially cut costs to operate on less income. Many companies were bought out by other ones and policy definitions were substantially changed to make the features less comprehensive, but premiums went up. Renewing policies also substantially went up, but maintained their previous features.

The reason I started Insurance Claims Advice in 2022 was to address the fact that getting a TPD claim paid out became a major battle, which many people (due to ill health etc) were not capable of fighting on their own. A lot of people ended up with lawyers, some of whom charged a very high fee, or dropped their case if they felt the odds of winning were low.

I believe financial planners and/or financial advocates (if they have the specialist knowledge and experience for claims) are better placed to deal with the insurers, as they have contacts with BDMs and know the processes the claims teams will follow.

If you or anyone you know, needs to get a personal insurance claims across the line, give us a call for an obligation free chat. I also have a free guide ‘Insurance Claims Made Easy’ to guide you if you feel well enough to try to process your own claim.

Come back in May for our next edition! Then I will cover the absolute worst legislation ever… the Protect Your Super (PYS) legislation of 1 July 2019, which lead to the cancellation of thousands of insurance policies held in super funds, often without the insured person even knowing about it. Think you used to have cover, but it’s not there now? This is probably why. I will explain all next month.