Do I have to tell a life insurer about my prescription?

What the law actually says

Insurance Contracts Act 1984 (Cth), Compilation No. 32, compilation date 1 March 2024 (C2024C00063).

Which duty applies to you. There are two, and which one you are under depends on the contract. s 11AB(1): a contract is a consumer insurance contract if “the insurance is obtained wholly or predominantly for the personal, domestic or household purposes of the insured”. Personal life, income protection and trauma cover is ordinarily that. If it is argued about, s 11AB(3) presumes the contract is a consumer insurance contract unless the contrary is established.

The duty for consumer contracts. Part IV, Division 1A applies (s 20A), and s 20B(1) states it: “an insured has a duty to take reasonable care not to make a misrepresentation to the insurer before the relevant contract of insurance is entered into.” This is not the old duty of disclosure. It was inserted by the Financial Sector Reform (Hayne Royal Commission Response) Act 2020 (Cth), Schedule 2, and the older duty in s 21 now applies only to contracts that are not consumer insurance contracts (s 20E).

Which duty you are under depends on when your policy started, and the date is 5 October 2021 — not the day the amendments commenced. Schedule 2 commenced on 1 January 2021, but its application provision is item 37, and item 37(1) and (2) apply the new duty only to contracts “entered into on or after 5 October 2021”. A policy taken out before that day is still governed by the old duty of disclosure in s 21, which is a different and generally harder test — it required you to disclose every matter you knew, or a reasonable person would know, to be relevant to the insurer's decision, without the s 20B(3) factors that now weigh how clearly the insurer asked.

Renewing or reinstating an old policy does not bring it across. Item 37(2) expressly excludes contracts of life insurance entered into before 5 October 2021 that are “extended, varied or reinstated” on or after that day as mentioned in s 11(9)(a) or (c) of the Act.

But increasing your cover partly does, and this is the trap. Under item 37(3), where a pre-2021 contract is varied on or after 5 October 2021 to increase a sum insured or add a kind of cover, and “the variation was not an automatic variation but was required to be expressly agreed”, the contract is treated as entered into on or after that day to the extent of the variation, and the new duty applies to that extent. One policy can therefore sit under the old duty for its original cover and the new duty for the increase — which is worth knowing before you answer the questions attached to a cover increase.

An insurer can also opt a contract in. Item 37(4) applies the amendments to a contract entered into on or after commencement if the insurer gives written notice, before the contract is entered into, that it is a consumer insurance contract — the same mechanism as s 11AB(2).

The three-year avoidance window has its own start date. The version of s 29(3) described below was inserted by Schedule 2 Part 1, whose application provision (item 2) applies it to a contract of life insurance “originally entered into after the commencement of this item” — 1 January 2021 — with a parallel rule for expressly agreed increases in cover.

How the duty is measured, and why it matters here. s 20B(2): reasonable care is determined “with regard to all the relevant circumstances”. s 20B(3) lists what may be taken into account, and two of the six are about the insurer rather than you — “how clear, and how specific, any questions asked by the insurer of the insured were” and “how clearly the insurer communicated to the insured the importance of answering those questions and the possible consequences of failing to do so”. s 20B(4) adds any particular characteristics of the insured the insurer knew of or ought reasonably to have known of. A vague question is the insurer's problem to a degree the old duty did not allow for.

Two limits worth knowing. s 20B(5): you are “not to be taken to have made a misrepresentation merely because” you failed to answer a question, or gave an obviously incomplete or irrelevant answer. And s 20B(6): a misrepresentation made fraudulently is a breach of the duty, to avoid doubt.

Whose misrepresentation counts. s 27AA(1)(a) makes a breach of the duty a relevant failure, which is what unlocks the insurer's remedies. s 27AA(2) extends it: where someone other than the insured becomes a life insured under the contract — a spouse on a joint policy, for instance — a misrepresentation by that person is a relevant failure too, even though the duty itself did not apply to them.

What we did not check. The Life Insurance Code of Practice, published by the Council of Australian Life Insurers, is industry self-regulation rather than statute. Nothing on this page describes it, because it has not been read. It may add obligations an insurer has accepted voluntarily, and it is worth asking your insurer which version of the Code they subscribe to.

What happens if it goes wrong

What the insurer can do about a relevant failure, read off s 29 of the Act as compiled at 1 March 2024. None of it applies at all if “the insurer would have entered into the contract even if the failure had not occurred”, or if the failure was about a date of birth (s 29(1)).

• If the misrepresentation was fraudulent, the insurer may avoid the contract — s 29(2). There is no time limit on this one.
• If it was not fraudulent, but the insurer would not have written the policy on any terms, the insurer may avoid the contract within 3 years after the contract was entered into — s 29(3). After three years that route closes.
• Otherwise the insurer may vary the contract: either by substituting a reduced sum insured calculated on the premium actually paid against the premium it would have charged (s 29(4)), or by varying the contract to put itself in the position it would have been in (s 29(6)), subject to what other reasonable and prudent insurers would have done (s 29(7)).
• A variation takes effect from the day the contract was entered into, not from the day the insurer finds out — s 29(9).

General insurance is different and simpler: under s 28, a fraudulent failure lets the insurer avoid the contract, and otherwise the insurer's liability on a claim is reduced to the position it would have been in had the failure not occurred.