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.
Comments
I had Professional ladies tell me that they prefer to keep their group insurance in place because it is cheap and they can claim on it later when they start a family. Unfortunately I have had to educate them that an Indemnity IP contract will only protect their pre-disability income. Guess how much you can claim on your IP contract if you are off work raising a family with no personal exertion income when Illness or injury occurs?....but it's cheap right???
Yep, thats right Bill. Especially with the changes in temp incapacity laws if the policy is held within super (depending on when it started).
It's worse than that, if they're not on approved paid leave then the policy might as well not exist, they can't satisfy the requirement to cease employment due to illness or injury, pre-disability income won't even come in to it. They do still pay their premiums of course, for nothing. There's a lot of truth in this article.
I can't remember the last time I compared the cost of a retail life and TPD policy with a group policy and the group policy was cheaper, sometimes they very close in cost but when you factor in the 15% rebate for paying by partial rollover it's very rare for the group policy to be cheaper. Then you've got to look at the rubbish TPD definitions provided by the group policies.
Group Insurance policies when set up correctly can provide great value for money. The challenge for the Industry is how the cost of professional and competent advice can be factored in to generate the best outcome for a client.
Great value until you get to claim time and you get declined as underwriting wasn't done upfront and most policies arent guaranteed renewable so you never really know whether you are going to be covered in future.
Hope you're not an adviser, Tim.
There is no more biased submission than clearview's. It's almost laughable. Group insurance provides affordable cover to millions of Australians that would otherwise never receive it. A few questionable declines made by comminsure shouldn't tar the rest of the industry. Let's hope reality slows the progress of these so called reforms!
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