Insurance In Superannuation: Uncomplicate The Conversation
Members who have Death, Total & Permanent Disability (TPD), and Income Protection insurance as part of their superannuation often find it rather confusing. As such, it is vital for a fund’s customer service team to fully understand the group insurance policy attached to the average super account, as compared to buying individual policies from external providers. This blog will help prepare your customer service team for what can be a complicated conversation with members.
KNOW THE BENEFITS OF AUTOMATIC ACCEPTANCE
Automatic acceptance can be a wonderful “benefit” for members. While members do not always get much of a say in the amount of insurance cover they will receive, it can still be beneficial to receive any amount of cover without the need for all that invasive underwriting.
Depending on the fund and member circumstances, this cover can possibly be too little, or even too much for the member. Members may only want enough Death and TPD to cover the last chunk of their mortgage, or maybe enough to keep their significant other in the style they are accustomed. Either way, the automatic acceptance cover can be a great place to start.
Members will often try to research their own Group Life policy, but in my experience, they will still have a number of questions. Below I provide the most common examples of questions members have. It is important for representatives of a super fund to know the answers to these questions, or at least know where to locate the answers quickly.
Does my cover have limits?
The point of automatic acceptance is so that the member does not need to be underwritten (if they are fit enough to be at work on their first day, they are fit enough to be covered). Some policies may still include clauses and limitations, such as exclusions for pre-existing conditions, suicide, injuries or incidents overseas, or even reducing or cancelling insurance completely if the member reduces their working-hours below a certain point. It is worth knowing these limitations, or at least knowing where to find them to easily direct the member.
Can I increase / decrease my automatic cover without underwriting or at all?
Every superannuation fund is different and each one will have their own Group Policy type with their own insurance provider. As such, members must not assume that they will be able to increase their cover with Fund X just because their friend could with Fund Y. Some funds may allow members to increase up to a certain amount without underwriting, some may require a full medical check to change at all, and some may not let members change their cover other than cancelling it.
Will my cover change with age or for other reasons?
Depending on the fund’s policy, automatic cover could be anything from a fixed amount that will not change throughout the life of the member account, to a unitised figure that will decrease with age or even through to something that is salary based. Whichever it is, is this cover the right one for the member?
Does my TPD cover (if applicable) insure me for any occupation, or only my current occupation?
There are two main definitions of TPD cover, “Any Occupation” or “Own Occupation”, and it is important to understand the difference, as it can potentially lead to a nasty surprise for the member. In short, “Any Occupation” means that a member can claim their TPD cover if they have been injured in a way which prevents them from working in any occupation for which they could reasonably be trained. That is to say, just because a member can no longer work as a landscape gardener due to the loss of a leg, it doesn’t necessarily mean they cannot be trained to do data-entry. “Own Occupation” means that the member only needs to no longer be able to perform the occupation for which they are currently trained in order to claim.
TYPES OF COVER
Members who have applied for insurance cover through external providers will have noticed a multitude of insurance types available to choose from. Apart from the obvious ones like life, car or home and contents, there is also cover available for trauma, caravans, pets, or even your golf game, plus some outright bizarre ones to insure against things like alien abduction, immaculate conception, or zombie attack.
The world of superannuation is a little tamer, generally offering only three types of cover: Death, TPD, and Salary Continuance (also called Income Protection). Some funds may also choose to offer a Total & Temporary Disability cover, however this is becoming less and less common as Salary Continuance takes its place. Whether superannuation funds decide to take up other forms of cover in the future remains to be seen.
It is important to make the member aware that insurance claims through super funds can generally take longer than claiming through a direct insurance policy, because the claim needs to be assessed by the super fund before being passed to the insurer. Additionally, if the beneficiary of the policy is not a dependent, there may be tax implications on the payout.
COST AND REPAYMENT OF PREMIUMS
While most insurance providers require a yearly premium to be paid up-front out of your pocket, Group Insurance through superannuation is paid from the member’s account balance. Whether this is considered a pro or a con is a matter of personal opinion, but it does mean that there is no insurance bill to take care of each year. It also means, however, that members cannot claim those premiums on their annual tax return as with personal insurance.
Even without the tax benefits, insurance through superannuation can often be much cheaper than purchasing a personal policy, as super funds will buy their policies in bulk from their insurer, meaning they can pass those savings onto members.
At the end of the day, insurance is a very personal type of benefit, which depends on the member’s own personal circumstances. Having cover through a superannuation fund or through a personal policy elsewhere is ultimately something only the member or their financial advisor can decide, but either way, it is definitely important to draw the member’s attention to any automatic cover they have as part of their super account. If members have multiple accounts, they will likely have multiple policies, and policies may have clauses that state that they will not pay out if the member has already received insurance payments from elsewhere.
For more information on the pros and cons of insurance through superannuation, refer to the Australian Securities and Investments Commission (ASIC)’s webpage, “Insurance through super”. For further reading, please see my previous blog, “Improve member engagement by addressing the 5 biggest misunderstandings of superannuation.”
Business Solutions Consultant