Superannuation funds typically offer three types of insurance for their members. Attwood Marshall Lawyers Compensation Law Senior Paralegal, Amy Lewis, explains the different insurance policies and what to look out for to ensure you have access to the right benefits when you need them most.
How age makes a difference to your superannuation insurance
If you are over 25, most superannuation funds automatically provide Life Cover (also known as Death Benefits) and Total Permanent Disability (TPD) Cover. In addition, some superannuation funds may provide income protection however, this is not a standard inclusion.
It is important to be aware that under superannuation legislation, funds will cancel insurance of any inactive accounts that have not received a contribution in at least 16 months. Individual funds may also have rules around minimum account balances required for insurance policies to remain active. If you have made, or are considering making a COVID-19 early release superannuation withdrawal, it is imperative to understand the effect this may have on your ongoing insurance cover.
As of 1 April 2020, superannuation funds no longer offer insurance automatically to new members if:
- The member is under 25 years old
- The account balance is less than $6000
For those under 25, insurance will only be automatically included if you work in a dangerous occupation or if you specifically request insurance in writing from your superannuation fund.
What type of cover is available through superannuation?
Life (Death) Cover
Death insurance pays out your insured amount when you die or suffer from a terminal illness.
Death cover can provide you the peace of mind knowing that during a difficult and challenging time, you and your family will have financial resources available.
Trauma Cover is not included under a superannuation life cover policy and can be purchased as a separate policy. Trauma cover provides a lump sum of money to cover immediate medical expenses and other financial needs when a critical illness or injury occurs.
Total and Permanent Disablement (TPD) Cover
A permanent injury or illness can make it difficult or impossible to return to work. If you are unable to return to work due to an injury or illness, TPD insurance can help cover your ongoing expenses.
TPD claims are usually paid in a lump sum payment however, some new policies (such as the Sunsuper ‘TPD’ Assist policy) provide annual instalments on the basis you continue to be deemed as totally and permanently disabled.
Each insurer has a different definition of what it means to be totally and permanently disabled – it is important to understand your cover and the rules that apply.
If you are temporarily unable to work due to injury or illness, income protection can replace up to 75% of your usual salary once you have served your waiting period.
Waiting periods can vary from 14 days up to several months so it is important you select a waiting period which suits your budget requirements. In addition, you can also choose your benefit period. The benefit period is simply how long you receive payments for (providing you continue to be unable to work). Benefit periods can range from months to years and even up to specific ages such as 65.
Remember that income protection only provides cover if you are injured or ill. It does not cover you if you for loss of income from reduced hours of job loss.
What to look out for in your superannuation insurance policy
Although insurance through superannuation can be cost effective, it is important your insurance meets your personal needs and expectations.
Here are some tips to consider:
- Ensure your insured amount meets your requirements. This is important for all types of insurance products available through superannuation. If you need a higher level of cover, contact your fund to request an increase.
Waiting and benefit periods
- When it comes to income protection, be aware of your waiting and benefit periods. The waiting period should suit your needs and budget – can you survive without income for x amount of days? Also, ensure your benefit period reflects how long you wish to receive income protection payments for (providing you continue to be unable to work).
- Insurance within super usually has an age cut-off compared to life insurance products available directly through insurers. It is important to review this age requirement especially as you get older. Each fund’s policies will differ. Usually TPD insurance and life insurance cover in superannuation will cease at age 70 (some funds may be earlier).
- Depending on your financial position, it may be beneficial to hold income protection outside of super to enable you to claim these premiums as a tax deduction. Insurance premiums paid through super accounts are currently not tax deductible.
- Understand your funds’ rules in relation to insurance automatically being switched off. Does your fund have a minimum account balance or contribution requirement to maintain coverage? This is particularly important if you have made a COVID-19 super withdrawal or are considering making a COVID-19 withdrawal.
Minimum working hour requirements / casual employment
- It is becoming more common to see stricter requirements for casual employment or those working under the ‘minimum working hour’ requirement.
For example, a standard definition for a TPD claim for an individual who is working full time may look like:
Unlikely to Return to Work
The insured person is unable to follow their usual occupation by reason of illness or injury for three consecutive months and, in our opinion, after consideration of medical or other evidence satisfactory to us, is unlikely to ever to be able to engage in any regular remuneration work for which the Insured Person is reasonably suited, having regard to their education, training or experience up to the time of the assessment of the claim.
A casual or part-time worker who does not work the minimum hours may also be required to have suffered an inability to perform at least two activities of daily living in addition to the above. Activities of daily living means:
(a) bathing and showering;
(c) moving from place to place, including in and out of bed and into and out of a chair;
(d) eating or drinking;
(e) using the toilet.
This could mean an individual may well miss out on a TPD claim simply due to their employment status.
Review your cover regularly
- It is important to review your cover and insurance requirements regularly. Some funds will provide additional cover when you undergo a life event such as taking out a mortgage, marriage, children or age milestones without the need to undergo medical assessment.
Get the right advice
Before taking out a financial insurance product, you should seek advice from a financial planner to ensure your needs are adequately met.
In the event you need to make a claim against your insurance policy, we are here to help. We strive to get your claim lodged with the insurer as soon as we can. We stay on their case until we get a resolution for you. Many clients have tried to lodge claims themselves or have allowed their financial planner or insurance agent to assist. It is very important that you engage experienced lawyers in this area, as you only have a limited time and one opportunity to claim a policy payment. Sometimes, mistakes are made in the application which can delay or even compromise your payment. Please make sure you get the right advice.