17 Aug The devil is in the detail for super life insurance
I wanted to revisit this topic given the recent publicity insurance through superannuation, especially industry super funds, has been receiving lately.
If you haven’t seen them yet we encourage you to have a look at these two articles recently published by Adele Ferguson:
I believe super funds shoulder a major part of the responsibility for these issues, which were abused from the start and now are coming back to haunt them, but ultimately hits members the hardest.
Super funds have been pushing insurers for years with unsustainable practices such as non-underwritten, yet fully guaranteed, insurance policies. This means that if you joined the super fund with a pre-existing medical condition in many cases you were still covered and able to claim.
I had an experience with a client about 12 months ago where we were processing their terminal illness claim on their retail policy through us with a major insurer. Since taking out the policy through us years ago the client disclosed to us that they had become a member of multiple industry super funds as a result of a few shorter-term jobs, each with a default and fully guaranteed amount of cover. Our client was (rightly) able to claim on 5 different super funds policies without ever having being underwritten or having to declare the various funds they had, and so obtained nearly $1,000,000 in extra life insurance! Great for our client of course, but it might highlight why super funds are in a tight spot and scrambling to dig themselves out of this hole.
Because in what world are examples like that sustainable? As a result claims experience on cover through super has skyrocketed and who pays for that? Members of course! So thanks to joint irresponsibility from super funds and pressure placed on their insurance partners most super funds are now either raising their insurance premiums to retail levels (retail is what we advise on), taking away rights from members, potentially without members realising, or a combination of both.
It also is important you are aware of the clauses that are relevant to your insurance through super, which is what the article regarding Kinetic super is about. What scares me for clients who choose to use a combination approach of insurance through their super fund as the primary policies and secondary retail/outside of super policies to plug the gaps is the alarming rate at which insurance terms and conditions are being changed by industry super funds.
I found this in the PDS of one of Australia’s biggest industry super funds the other day and can only wonder how many members of that fund think they are insured when they’re not and have lost their cover as a result:
We strongly encourage you to review your insurance through superannuation and the clauses under which you are covered, under which you can claim and seek proper advice, which is what we’re here for. We’ve have been in the insurance profession for over 30 years, know this stuff back to front, and just want to make sure that you’re properly covered and don’t experience a financial and emotional disaster with any cover you have through super.
Now might also be a good time to review one of our earlier blog posts about further pitfalls of insurance through super such as tax payable on benefits and low-quality definitions that mean you might not be able to claim, where a policy outside of super would be the better option.
Please contact us on 02 9633 5530 and we will be more than happy to help you understand where you stand.
Article written by Sacha Loutkovsky, all views expressed in this article are my own and do not reflect that of other advisers nor that of our licensee Aon Hewitt Financial Advice. This information, and any advice provided is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore you should consider its appropriateness having regard to these factors before acting on it.