Group life insurance is only prima facie cheaper than buying corresponding cover via standalone advised retail policies and this reality should inform consideration of making all insurance within superannuation “opt-in”, according to ClearView Wealth managing director, Simon Swanson.
In a submission filed with the Senate Economics Legislation Committee as part of its review of the Government’s legislation aimed at making insurance within superannuation opt-in for those aged under 25, Swanson has argued that standard amount of cover provided via group insurance – $100,000 to $200,000 – actually encourages under-insurance.
“…the very provision of the default cover seems to give many members a false sense of security, and/or the fact they have cover dissuades them from properly and carefully considering what their cover needs might actually be,” his submission said. “In this respect, the behavioural consequence of the default cover does as much harm as good for many members.”
At the same time, Swanson argued that many superannuation fund members were paying for product they didn’t or couldn’t use, adding that is that members can be covered for benefits they cannot even claim.
“For example, income protection cover typically requires a minimum level of employment to be eligible to claim,” he said.
Swanson said one of the advantages claimed for group life cover was that it was often less expensive than retail, advised life insurance but this could be illusory in circumstances where members were paying for cover they could not claim on and were likely cross-subsidising other fund members.
“Perhaps most importantly, a significant component of retail premiums is the cost to fund the provision of personalised financial advice supported by the product,” he said.
“Super fund members ‘save’ on the cost of that advice – but they don't get the education, insight and advice that is appropriate to their specific circumstances, resulting in the wrong cover, inadequate levels of cover, or insurance that is not needed,” Swanson said.