The insurance policy of superannuation funds are seriously letting down people, according to Blueleaf Consulting.
A recent column by Blueleaf’s principal, Gary O’Sullivan, looked at the quality of industry super funds’ insurance offerings and found the ‘income off-set provision’ was a significant flaw.
O’Sullivan said the ‘off-set’ clause was defective as it off-sets any benefits received under the insurance policy in particular if a fund member has two or more policies in place.
“Industry super funds provide a range of insurance benefits to their members including, income protection and death, and total and permanent disablement cover. Unfortunately, as we all know, as far as the quality of insurance contracts are concerned, the ‘devil is in the detail’. There is at least one significant flaw in the majority of the industry super funds’ insurance offerings,” he said.
“The flaw I am referring to is the ‘income off-set provision’ under their respective group income protection policies”
Taking into account that a profound number of Australians end up with multiple super funds, it becomes a real issue for many. However, he said the industry broadly accepted that an individual should be entitled to cover up to 75 to 80 per cent of their pre-disability income under an income protection policy. At the same time this level should also provide an incentive to return to work.
He explained that in some cases where the a fund members held more than one policy, they ended up with being paid significantly less than the agreed 80 per cent of their pre-disability income level because the ‘set-off’ clause had been applied which effectively had reduced the benefits being received leading to the outcomes that some fund members received less than 60 per cent of their pre-disability income level.
“Industry super funds should address this issue with the group insurers,” he added.
O’Sullivan proposed that instead of applying an off-set clause, the income protection benefits should be reduced only where the total monthly benefits payable exceeded 80 per cent of pre-disability income levels.
