Insurance in Super. Is it Super?

I was reading this week the ask an expert section in the Brisbane Times and a question was put forward of a sad situation, but highlighting a significant issue with group insurance policies (typically those in industry funds, employer superannuation funds and sometimes direct employer funded policies).

The link to the article is here.

The situation is that the person originally had income protection insurance cover within their industry superannuation fund that had a benefit period until age 65, but at some point along the way, the policy was changed to a 5 year benefit period. Now she is on claim and nearing the end of the 5 years without being able to return to work, it's a problem.

She would have been notified at the time the change was made and perhaps ignored it (as many probably do). But what happens a lot is that we have medical issues along the way such as: back problems (insurers hate back problems as it is a common area of claim), perhaps you have had to take some time off work due to mental illness and have been taking some medication (again, mental illness is a big area of claim). So if your group policy is now changed so that it no longer suits, then you wouldn't be able to get new policy elsewhere, even if you wanted to. So they are just stuck with the fact their policy covering them to age 65 has just been slashed to 5 years.

The same thing happened to the definition of what is total and permanent disablement for those covered within AustralianSuper many years ago which negatively impacted millions of members (Link)

What you want in an insurance policy is guaranteed or non cancellable. This means that providing you keep paying the premium, they have to cover you for what is listed on your policy schedule and as per the terms in the product disclosure statement at the time you took out your policy.

The other thing is that when you are in a group insurance policy, you need to stay within that group. So, if that is in a superannuation fund, that means to keep getting than cover, you need to stay within that superannuation fund - so if some health issue occurs that prevents you from getting new cover elsewhere, you are handcuffed to that superannuation fund. The same is true with group policies provided by your employer, if you leave that employer, that cover is gone too.

The thing is, for most people, the premiums for a quality non cancellable, retail policy is usually just as good, or thereabouts, compared to the group policies I've been speaking about. You are still able to fund these policies from superannuation, but they aren't linked to one specific fund so you can in the future change fund or start a SMSF, and maintain your insurance policy which can be so valuable for so many people.

If you've got a retail policy and it feels like it's very expensive, it could well be, but that is probably because it's got too many bells and whistles (the group policies are always bare bones) or the sum insured is to high or you're a smoker (that really puts the premiums up).

So, to answer the question of this blog - is it Super? Well, for those group policies - No! They kind of suck.

Do you want to review your insurances? Give me a call on 1300 200 012 or email enquiries@precisionwm.com.au

Glenn Hilber is a Certified Financial Planner with over 10 years experience and the owner of Precision Wealth Management.

This represents general information only. Before making any financial or investment decisions, we recommend you consult a financial planner to take into account your personal investment objectives, financial situation and individual needs.