The most common reason a life insurance claim fails has nothing to do with the claim itself. It happened years earlier, at the application, in an answer that seemed unimportant at the time.
The rules around this changed significantly in 2021, and most of what is written about it still describes the old system. The current duty is narrower and less onerous than the one most people have read about, which is worth knowing whether you are applying now or dealing with a decision you disagree with.
The duty changed in October 2021
For consumer insurance contracts entered into on or after 5 October 2021, the old duty of disclosure was replaced by a duty to take reasonable care not to make a misrepresentation, introduced into the Insurance Contracts Act following the Hayne Royal Commission.
The difference is fundamental.
Under the old duty, you had to disclose every matter you knew, or that a reasonable person in your circumstances could be expected to know, was relevant to the insurer’s decision. You were effectively required to work out what the insurer would want to know and volunteer it.
Under the current duty, you must take reasonable care not to make a misrepresentation when answering the insurer’s questions. The obligation is tied to what you are asked. You are not required to guess at what might matter.
The practical effect is that responsibility shifted toward insurers to ask clear, specific questions. If they do not ask, they generally cannot later complain that you did not tell them.
What “reasonable care” actually means
Whether reasonable care was taken is assessed against all the relevant circumstances, and the legislation sets out matters that may be taken into account. They include:
The type of policy and its target market. Any explanatory material or publicity the insurer produced. How clear and how specific the insurer’s questions were. How clearly the insurer communicated the importance of answering and the consequences of not doing so. Whether an agent was acting for you. And whether the contract was new or was being renewed, varied or reinstated.
The insurer must also take into account any particular characteristics or circumstances of yours that it was aware of, or ought reasonably to have been aware of. Age, health conditions affecting comprehension, literacy and English language ability are all capable of being relevant.
Read that list again if you have had a claim declined. Several of those factors put the quality of the insurer’s own questions and communications squarely in issue.
What is not a breach
This section matters because a lot of people accept fault they may not have.
You are not treated as having made a misrepresentation merely because you failed to answer a question, or gave an answer that was obviously incomplete or irrelevant. An insurer that noticed an obviously incomplete answer and issued the policy anyway is in a weaker position than one that was actively misled.
Not every incorrect answer is a misrepresentation. Answers that are technically untrue but concern minor or irrelevant matters are generally not treated as misrepresentations at all.
Where you genuinely believed an answer to be true, and a reasonable person in your circumstances would have formed the same belief, that is relevant and can be a complete answer.
Where the insurer’s question was ambiguous, that also counts against the insurer rather than you.
And a misrepresentation only assists the insurer if it actually mattered. If the insurer would have issued the same policy on the same terms regardless, the remedies are generally not available to it.
Which duty applies to you
Three situations, and they are treated differently.
Policies entered into on or after 5 October 2021 that are consumer insurance contracts, meaning obtained wholly or predominantly for personal, domestic or household purposes, are subject to the current duty to take reasonable care.
Policies entered into before that date remain subject to the older duty of disclosure. If your cover is long-standing, the more demanding standard may still apply to what you said when you took it out.
Cover held through superannuation is more complicated. Group policies are held by the fund trustee rather than by you, and whether the current consumer duty applies can depend on whether the insurer has nominated the arrangement as a consumer insurance contract. Do not assume the position is the same as for a personally held policy. If this is your situation and a claim is in dispute, it is worth specific advice.
What an insurer can actually do
The remedies available to a life insurer are set out in the Insurance Contracts Act, and they are narrower than most people assume.
Avoiding the policy for non-fraudulent misrepresentation. The insurer must show it would not have entered into a contract of life insurance with you on any terms had the correct information been given. That is a high bar. It is not enough that the insurer would have charged more or applied an exclusion. And it must act within three years of the contract being entered into.
Varying the policy. Where the insurer would still have offered cover but on different terms, it may be able to vary the contract, commonly by reducing the sum insured to reflect what the premiums paid would have purchased on correct information. This is a proportionate outcome rather than a total loss of cover, and it is the more common result.
Fraud. Where a misrepresentation was made fraudulently, the insurer may avoid the contract at any time, with no three-year limit. Fraud means deliberate dishonesty, not carelessness or a poor memory, and the insurer bears the onus of proving it.
There is also a judicial discretion to disregard avoidance in some circumstances where the conduct was not fraudulent and the insurer has not been prejudiced.
The three-year point deserves emphasis, because it is widely misunderstood in both directions. An older policy is considerably more secure against innocent errors than a recent one. It does not, however, protect against fraud.
How it comes to light
Non-disclosure is almost never concealed successfully. At claim time, insurers routinely obtain full medical records going back many years, pharmaceutical and Medicare histories, employment and payroll records, and any earlier claim history.
A consultation you had forgotten about appears in your GP notes. A prescription appears in your dispensing history. The question is not whether it will be found, but whether what you said was reasonable in the circumstances.
Where people most often go wrong
Mental health history. The single most common area. Counselling sessions years ago, a short course of medication after a difficult period, a workplace referral. People genuinely do not think of these as medical history.
Investigations that went nowhere. A scan, a referral, a specialist appointment or a test with an inconclusive result. If you were asked whether you had been investigated for anything, the answer is about the investigation, not the outcome.
Alcohol consumption. Routinely understated, and routinely visible in medical notes.
Smoking and vaping. Definitions vary between insurers and often extend well beyond cigarettes and further back in time than people assume.
Answers given verbally. Where an application was completed by phone or by someone else typing on your behalf, you remain responsible for what was recorded. Read it before signing. This is one of the practical arguments for going through an application with an adviser rather than a call centre. Part of what life insurance advice in Adelaide involves is making sure the questions are understood and the answers recorded properly.
Changes between application and issue. The duty runs up until the contract is entered into. If you see a doctor, receive a diagnosis or have a symptom appear in the weeks between applying and being accepted, tell the insurer. This is a frequent and entirely avoidable problem.
How to answer properly
Take the application seriously and slowly. Ask for the questions in writing if you are being asked them verbally.
Check your own records before answering rather than relying on memory. Your My Health Record, your GP, and your pharmacy dispensing history will all tell you things you have forgotten.
Where you are unsure whether something is relevant, disclose it. There is no penalty for telling an insurer about something that turns out not to matter. There is a significant one for the reverse.
Read the completed application before signing, including anything filled in by an adviser or call centre operator.
Keep a copy of everything, including the completed application, the questions as they were put to you, and any correspondence. If a dispute arises a decade later, that file is your evidence.
If you are choosing a policy rather than fixing an existing one, our guide on how to choose the right life insurance policy covers what to weigh before you get to the application form.
If you realise you got something wrong
Tell the insurer, in writing, as soon as you realise. A voluntary correction is treated very differently from something discovered during a claim assessment, and insurers can usually re-underwrite and adjust terms rather than dispute a claim later.
The instinct to leave it alone and hope is understandable and is almost always the wrong call. If you are unsure whether something needs correcting, raise it with your adviser first. That conversation is part of ongoing life insurance advice, and it is far cheaper than a disputed claim.
Other reasons claims get denied
Non-disclosure is the largest category but not the only one.
Not meeting the policy definition is common, particularly with total and permanent disability, where the definition may require an inability to ever work again in a defined sense, and with trauma cover, where conditions must meet specified severity thresholds.
Policy exclusions apply, including pre-existing condition exclusions, specific exclusions applied at underwriting, and hazardous pursuits.
Policies lapse for non-payment, sometimes without the insured realising.
And insurance inside superannuation can be cancelled where an account is inactive or the balance is low, unless the member has opted in. Many people believe they hold cover that ended years ago.
Another cause of unpaid benefits has nothing to do with the insurer at all: policies where nobody knew the cover existed. Our guide on avoiding unclaimed life insurance payouts covers what to leave behind so a claim can actually be made.
Our article on life insurance mistakes to avoid covers several of these in more detail.
If a claim has been declined
A declined claim is a decision, not a conclusion.
Ask for written reasons and for the material the insurer relied on. Use the insurer’s internal dispute resolution process first, since it is free and sometimes resolves the matter.
If that fails, you can take the matter to the Australian Financial Complaints Authority at no cost. AFCA has published approaches to non-disclosure and misrepresentation in life insurance, and it considers the full statutory framework, including whether the questions were clear, whether you genuinely believed your answer, whether the matter was minor, and whether you were in a vulnerable position at the time.
For substantial claims or complex disputes, specialist insurance lawyers act in this area and many do so on a no-win-no-fee basis. This is legal work rather than financial advice, and it is worth getting properly.
Where we fit
We are not lawyers and we do not run claims disputes. What we do is help people get the application right in the first place, which is where this problem is actually solved, and make sure cover is structured so it responds when it is needed.
If you are applying for cover, or you are not confident that what you hold would stand up, our life insurance advice page explains how we work. Get in touch and we will look at it with you.
Frequently asked questions
What is the duty to take reasonable care not to make a misrepresentation?
It is the duty that applies to consumer insurance contracts entered into on or after 5 October 2021, replacing the old duty of disclosure. Rather than requiring you to volunteer anything an insurer might find relevant, it requires you to take reasonable care when answering the questions the insurer actually asks. Responsibility shifted toward insurers to ask clear and specific questions.
Can an insurer cancel my life insurance for non-disclosure?
Only in limited circumstances. For a non-fraudulent misrepresentation, the insurer must show it would not have offered a contract of life insurance on any terms had it known the correct position, and it must act within three years of the contract being entered into. Where it would have offered cover on different terms, it may instead vary the policy, commonly by reducing the sum insured. Where a misrepresentation was fraudulent, the insurer may avoid the contract at any time.
What if I simply forgot something on my application?
Forgetting is not fraud, and it is not automatically a breach of the duty. What matters is whether you took reasonable care in the circumstances, which takes into account how clear and specific the question was, how well the insurer explained the importance of answering, and your own characteristics. Where you genuinely believed your answer was true and a reasonable person would have believed the same, that is relevant.
Does the three-year rule mean my policy is safe after three years?
It substantially reduces the risk. After three years an insurer generally cannot avoid a life policy for a non-fraudulent misrepresentation, though other remedies including variation of the policy may remain available. The three-year limit does not apply to fraudulent misrepresentation, which an insurer may act on at any time.
Is every incorrect answer a misrepresentation?
No. Answers that are technically untrue but concern minor or irrelevant matters are generally not treated as misrepresentations. You are also not treated as having made a misrepresentation merely by failing to answer a question, or by giving an answer that was obviously incomplete or irrelevant, which an insurer could have followed up before issuing the policy.
What should I do if my health changes between applying and being accepted?
Tell the insurer immediately. The duty applies up until the contract is entered into, so a diagnosis, symptom or medical appointment occurring in that window needs to be disclosed. This is a common and entirely avoidable cause of later disputes.
What can I do if my claim is denied for non-disclosure?
Ask for written reasons and the material relied on, then use the insurer’s internal dispute resolution process. If that does not resolve it, you can take the matter to the Australian Financial Complaints Authority at no cost, and AFCA will consider the full statutory framework rather than only whether an answer was incorrect. For substantial or complex disputes, specialist insurance lawyers act in this area, often on a no-win-no-fee basis.
Important. This article contains general information only and does not take into account your objectives, financial situation or needs. It describes provisions of the Insurance Contracts Act in general terms and is not legal advice. Money Path does not provide legal services and does not act in insurance claim disputes. Whether a particular answer amounted to a misrepresentation, and what remedies are available, depends entirely on the policy, the questions asked and the individual circumstances. If your claim has been declined, contact AFCA or seek advice from a lawyer who specialises in insurance claims.
