Insurance Inside Super Funds

Market Insights
9 years ago
3 minutes

Limitations of insurance inside industry funds

The main disadvantages of insurance are:

  • Basic:  The benefit usually contains no “bells and whistles” and cover is often quite limited due to the discounted underwriting and SIS Regulations .  The definitions and terms of the product are usually not as favourable when compared to retail insurance policies sold with financial advice.
  • Offsets:  Depending on the product selected, the policy may include a number of offsets including sick leave, any other policy and workers compensation entitlements.  The policy may also cease if the insured is totally disabled.  Furthermore, many older clients may find their cover reducing in later years.
  • Underinsurance: As no financial advice has been sought, the cover may be insufficient to meet the needs of the client in the event of death. The insurable income reported by the employer may not include bonuses, commissions, regular overtime or superannuation contributions.
  • Termination: The benefit will often cease when the insured changes employment, reaches 65 or retires. Not all funds offer a continuation option to transfer the cover to a self owned policy and cover may cease despite the client’s intentions of remaining in the workforce.
  • Exclusions:  Some policies may apply exclusions including depression, drug and alcohol related claims, criminal activity or pre-existing conditions.  Some industry funds may cancel the cover at any time.

Handy Hint

It is important to review the paperwork received by the employer super fund to ensure that you are aware of the terms of the cover being offered. Be mindful of:

  • Pastime exclusions
  • Pre-existing conditions
  • Offset clauses for sick leave
  • Policies terminating upon cessation of employment
  • Policies which cease if no contributions have been payable into the account for a specified period 
  • Decreasing cover
  • The right of the fund to cancel the insurance at any time
  • Salary continuance cover which ceases after the insured has made a claim for TPD. 

How does the insurance within an industry fund compare with cover offered by an adviser?

To ensure that premiums are affordable for all members without eroding their retirement savings, the products offered by the industry funds are generally basic relative to other providers on the market, however they do provide their members with valuable, (although quite basic) cover.

It is important to consider that retail products offered by Financial Advisers are more comprehensive, have definitions that are more favourable and offer more guaranteed cover, compared to industry funds and if your employment conditions change the policy remains in force as agreed at the time of application.  

The definitions and features with a policy offered by advisers are of higher quality with less offset clauses providing a greater security and opportunity to claim. Furthermore, the level of cover recommended by an adviser will more likely meet your long-term needs.

Importantly, being underwritten at the time of application also provides a level of comfort that a claim will be paid.