A reasonable case can be made for allowing superannuation fund members aged under 30 to opt out of default death cover, according to a submission to the Productivity Commission’s review of the efficiency and competitiveness of the superannuation system.
A joint submission of the Consumer Action Law Centre, Berrill and Watson Lawyers and the Chronic Illness Alliance pointed to the value of insurance within superannuation but noted that it was a common criticism of superannuation that account balances of young workers were “unreasonably reduced by fees and charges, including death insurance premiums when they do not have any dependents”.
“An efficient system to allow such persons to opt out of death cover would be an important measure to promote members’ needs at least cost,” it said.
“Indeed, there is a reasonable case to remove the default arrangements with respect to death cover for those members under say 30 years of age.”
The submission also noted that the 2013 Stronger Super legislative changes significantly enhanced data collection and reporting obligations of trustees, as well as requiring the development and implementation of an insurance strategy consistent with the demographics of fund membership coupled with a specific statutory requirement not unreasonably erode members’ retirement accounts.
It went on to say, however, that “there remains the problem of the impenetrability of some insurance policies and product disclosure statements, which compromises the ability of superannuation fund members to compare products and make decisions about their needs”.
It suggested that one solution was to introduce standard cover group life insurance across death (and terminal illness), TPD, and income protection cover whereby insurers offer cover with prescribed standard terms and conditions consistent with consumer expectations of such products but with the ability to offer nonstandard terms subject to an obligation to clearly inform members of the deviation from the standard terms.
“Standard cover exists under the Insurance Contracts Act 1984 with respect to retail general insurance policies such as home building and contents, motor vehicle, travel, and sickness and accident insurance but has never been in place with respect to life insurance products,” the submission said.
“Standardised terms such as definitions of TPD consistent with the “permanent incapacity” definition in the SIS Act for early access to superannuation and conditions prescribing exclusions and income protection benefit offsets would promote efficiency by ensuring that members’ expectations of benefits are met,” it said.
“The ability to deviate from standard cover would allow insurers, trustees, and members to tailor products to meet insurers’ commercial and members’ personal needs and promote efficiency.”
