If I had a dollar for every time someone told me, “Yes, I have insurance, it’s in my super fund”, I’d be one rich lady! Whilst I’m not disagreeing that you may indeed have cover, my problem lies with the quality of cover.
Industry and retail funds are required by law to offer default insurance within your superannuation account. However, there are no rules around the benefits they offer within these policies and what most people don’t realise is they may not be covered at all.
Here are a few fun facts you should know about insurance held inside your super:
Most policies within these funds decrease as you get older. They usually start tapering off at around age 40. This is usually the time when you need cover most because you have a mortgage to repay and kids to put through school. Policy indexation is important to ensure cover keeps in line with the time value of money.
Industry and retail fund policies are not guaranteed to renew. Most policies have a hidden clause which states that the cover can be cancelled at the decision of the trustees for any reason at any time. You could think you’re fully protected, then the unthinkable happens and you find out you weren’t protected.
Tax on benefits
Regardless of the superannuation fund, you will always pay tax on Total & Permanent Disablement (TPD) benefits. The implication of this means you may think you’re going to receive a $500,000 benefit but what you actually receive will be far less.
Underwriting on claim
When you opened your superannuation account, you are offered default cover, meaning you never have to answer a long list of personal medical questions. You may not realise there are serious implications to not doing this. Say for instance you’re diagnosed with diabetes at age 25. Then two years later you change superannuation providers and you’re offered default cover within that fund. Fast forward to another two years and you’ve had to take an extended time off work due to complications of your diabetes. You try to claim on your income protection/salary continuance only to be denied the claim. This is because two years prior to you taking out this new policy, you had already been diagnosed and this is technically a “pre-existing condition” in the eyes of the claims assessor.
There are many more reasons why you shouldn’t rely on default cover within your superannuation. To be certain you know what you’re covered for, be sure to come and see us for a full insurance review. We’ll prepare a detailed analysis of your current cover compared to other policies on the market you’ll know exactly what you’re covered for.
Please note this article provides general advice only and has not taken your personal or financial circumstances into consideration. If you would like more tailored advice, please contact us today, one of our advisers would be delighted to speak with you.