Insurance offered through superannuation funds has been in the spotlight largely because of the Royal Commission and recent legislated requirements.
Prudent members should now be looking at their levels of cover for Death, Total and Permanent Disability, Terminal Illness and Income Protection insurance and thinking about their needs. From 1 July 2019 members with low account balances and inactive accounts who don’t ‘opt-in’ to insurance will have their default insurance removed.
A ‘low account balance’ is defined as less than $6000 and ‘inactive account’ is defined as an account which has not had a contribution for the last 16 months. And of course it’s always wise to know how much cover you have, what type of cover you have and how much you are paying in premiums to customise insurance to suit your needs.
Why opt-out?
Industry super funds operate under a trust structure in favour of their beneficiaries (members). Trustees have a fiduciary duty and powers to act in the best interest of their members. The NGS Super Trustee has decided that it is in the best interest of the general membership to provide automatic, default insurance cover on an opt-out basis.
This enables the majority eligible members to have automatic cover (without a medical examination) at wholesale rates due to the large membership. It is a true member benefit which funds are also now legally required to implement for the default MySuper product on an opt-out basis.
However, many members do not understand the trust structure, the duties and powers of trustees and the automatic provision of insurance to them seems to be akin to a conspiracy. It is the single most common complaint to come across my desk with terms such as ‘unethical behaviour’, ‘I never signed up for this’, ‘a rip off’ and ‘immoral’.
The view of these complainants is that since they never chose to be insured, they should not be charged for automatic insurance cover. Although understandable, this view shows a basic misunderstanding of how a trust operates. Sadly, the fact is that members in general do not pay much attention to insurance attached to their super and most members hate filling in forms. And ironically the very members who are complaining about the automatic provision of default insurance neglected to read their welcome letters which advise of their levels of cover and the ability for them to ‘opt out’ of insurance should they wish to do so.
Most members want this low cost insurance and opt-out is in place to make it easy for the general membership to have life insurance. It should also be noted that the vast majority of the Australian population who are insured for Death and TPD are only insured through their super fund – they do not take out retail policies. This goes a significant way to fixing Australia’s under insurance problem and reduces the strain on social security services and resources. Even governments understand that fact as evidenced by the mandating of Death/TPD insurance on opt-out basis for MySuper products.
Illness, injury and death are not pleasant topics to think about. However, in my time working in superannuation (20 years), I have seen thousands of families supported by insurance benefits and statistically there is a very good chance that an individual will have to call upon insurance at some point in their lifecycle.
Death cover (life insurance in retail parlance) assists in maintaining the family home for the security of the deceased’s dependants. Income Protection assists members who are temporarily unable to work by providing up to 80% of pre-illness salary and a 10% payment into super for up to a five year payment period. And Total and Permanent Disability provides a lump sum payment to members who suffer from a serious illness or accident who will never be able to work again.
The new financial year is a good time for a stocktake on your insurance cover. Everyone has different needs so customise your insurance to suit your needs. Make sure you are not over-insured, which can happen with Income Protection when the insured amount is greater than your salary. And conversely, if your salary is much greater than the default cover, you may wish to apply for more cover to match your salary.
Think of your financial responsibilities and level of Death cover. Is it adequate? Point of claim is not a good time to start thinking about your insurance cover so consider your insurance options beforehand.