Many Australians have a false belief that the insurance policy they hold within their superannuation funds will protect them when they need it most.
Financial planner – Louise Davies said that insurances held within superannuation funds whether in a retail super fund or an industry fund are often not what they seem – and could be in fact group contracts.
There is a significant disadvantage when you hold a group contract; essentially, the contract is with the super fund trustees and the insurer and not you. This means that the terms and conditions of the group policy can be changed, without the member of the super fund necessarily knowing about it.
“I have seen so many cases now where there have been exclusions added to the policy by an insurer that could potentially negate claims that would’ve been paid out at the time of taking out a policy, which is a big worry,” said Ms Davies.
Having insurance within super is an affordable option and certainly has its advantages, but that most people don’t realise the flaws. Some of the major drawbacks are:
- Payment of life insurance benefits: If there is no valid, binding death nomination on the policy, then the trustees of the super fund decide who they pay out the benefits to. This may be to someone you did not intend for it to go.
- Timing of Claims payout: Due to the way the policy is owned, the claim must essentially go through 2 environments before it can be paid out. Firstly, the insurer must accept the claim and pay the proceeds to the super fund. Secondly, the super fund trustees must approve the payout of benefits. This can mean that it can easily take up to 6 months before you receive any of the benefits.
- Payment offsets: The amount of benefit you may receive from your insurance may be offset by amounts received as compensation payouts, Centrelink, and employer-provided benefits.
There are circumstances whereby holding group contracts with insurers may be appropriate if it can vary for each individual. With recent legislative reforms and product developments within the insurance industry, there are now options that allow individuals to hold contracts with an insurer and still have the policy inside their super.
“This means individuals get the best of both worlds; they know what they are covered for, have control over how much they are insured for and more importantly, they know the terms and conditions of their policy cannot be changed and if they are, only to their advantage,” said Ms Davies.
Individuals or families who want to know what to look out for with their insurance policies can access a free insurance review checklist by emailing firstname.lastname@example.org.