What the Life Insurance Code review could mean for key person cover

The most sensitive area is mental health. The report recognises the pressure insurers face from rising and more complex mental health claims, while also calling for stronger fairness and transparency. It recommends that standard policy wording should not completely exclude all mental health conditions. Where limitations are used, insurers should be able to justify them with documented actuarial or statistical evidence and review those settings regularly. That matters for directors, partners and self-employed professionals, because mental health-related exclusions or limitations can affect income protection, TPD and business expenses cover that often sit beside key person insurance.

The review also focuses on claims handling. Recommendations include clearer timeframes for decisions, tighter expectations when claims are reopened, and more useful regular updates for claimants. For a business, delayed insurance payments can mean cash flow pressure, difficulty replacing a key employee, or uncertainty around debt obligations. Better communication standards could reduce some of that stress, but they will not replace the need to understand policy definitions before a crisis occurs.

Financial hardship support is another practical theme. The report suggests insurers should look for warning signs such as missed premiums, requests to reduce cover or difficulty meeting living costs, then ask whether support is needed. This is relevant in a market where rising premiums are already forcing many Australians to reassess cover. Before cancelling or reducing a policy, business owners should compare cover options, check whether replacement cover would require new underwriting, and consider the risk of losing valuable terms that may no longer be available.

The Council of Australian Life Insurers is expected to provide an initial industry response by 30 September 2026, so these recommendations are not yet the final operating rules. Even so, they point to a stronger consumer protection environment and potentially more scrutiny of exclusions, hardship processes and claims communication. If your business depends heavily on one founder, revenue producer or technical specialist, this is a timely prompt to review sums insured, ownership structures, beneficiaries, tax treatment and policy wording with an independent broker or adviser.