Default insurance within superannuation is poorly targeted and is likely missing the mark, according to consumer group, Choice.
Choice has used a submission to the Productivity Commission’s review of the competitiveness and efficiency of superannuation to “strongly question” the assumption that consumers are underinsured and default insurance is required to cover people appropriately.
“Right now, policies don’t necessarily meet consumer needs and default insurance is poorly targeted,” the Choice submission said.
“Consumers are potentially paying for insurance they don’t need instead of being underinsured.”
It claimed four in five consumers had never analysed the type and amount of life insurance that suited their own circumstances and that many consumers would not realise they held insurance policies within superannuation.
“Fewer still will realise what they are covered for,” Choice claimed.
It said the assumptions underpinning group insurance needed to be challenged and asked why someone could not hold total and permanent disablement (TPD) cover without also paying for death cover.
“Why should a young person have death cover by default when they have no dependents? And why should a system be set-up so that consumers with multiple accounts automatically pay multiple insurance premiums, further eroding their total funds,” the submission asked.
Choice argued that new ideas about insurance within super were needed and suggested that default death cover might only commence around the age of 30 on the basis that, on average, people won’t have children until 33 (for men) or 31 (for women).
The submission also noted that many young people would have multiple accounts, with potentially multiple default insurance products and stated: “We cannot continue to let young peoples’ retirement balances erode due to poorly targeted and duplicate policies”.
It said that beyond default settings, the PC should consider the role standardised terms in insurance could play in increasing consumer confidence and allowing better comparisons of policies. “Choice believes that standard cover should apply to group life insurance across death (and terminal illness), TPD and income protection cover,” it said. “This would require insurers to offer cover with prescribed standard terms and conditions consistent with consumer expectations, only deviating from these standards if it is necessary for fund members and the changes are fully communicated.”
