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Many Australians have a false belief that the insurance policy they hold within their superannuation funds will protect them when they need it most.
Finance expert Louise Davies said that insurance held within superannuation funds, whether they are a retail super fund, or an industry fund are often not what they seem – and are in fact group contracts.
“There is a major disadvantage when you hold a group contract, essentially the contract is with the super fund trustees and the insurer and not you,” said Ms. Davies.
“This means that the terms and conditions of the group policy can be changed, without the member of the super fund necessarily knowing,” she said.
“I have seen so many cases now where there have been exclusions added to the policy by the insurer at a later date, that could potentially mean a claim that would have got paid out at the time the policy was taken now may not, which is a big worry.”
Ms. Davies said having insurance within super is an affordable option and certainly does have its advantages, but most people don’t realise the flaws. Some of the major flaws are:
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Payment of life insurance benefits: If there is no valid binding death nomination on the policy then the trustees of the super fund decide who they pay out the benefits to. This may be to someone you did not intend for it to go.
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Timing of Claims payout: Due to the way the policy is owned the claim essentially has to go through 2 environments before it can be paid out. Firstly, the insurer has to accept the claim and pay the proceeds to the super fund. Secondly, the super fund trustees have to approve the payout of benefits. This can mean that it can easily take up to 6 months before you receive any of the benefits.
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Payment offsets: The amount of benefit you may receive from your insurance may be offset by amounts received as compensation payouts, Centrelink, and employer provided benefits.
“There are circumstances whereby holding group insurance may be appropriate and it can vary for each individual.”
“With recent legislation reforms and product developments within the insurance industry, thankfully there are options now that allow the individual to hold the contract with the insurer and still have the policy inside their super.”
“Meaning they get the best of both worlds, they know what they are covered for and have control over how much they are insured for,”
“More importantly, they know that the terms and conditions of their policy cannot be changed and if they are, only to their advantage.”
Louise, our financial planning and wealth management specialist, is passionate about helping hardworking people protect their future. Individuals or families who want to know what to look out for with their personal insurance policies can get in touch with our experienced team on PH: (08) 9240 4211 or by booking a consult via the button below.
Louise Davies and Fortuna Wealth Management Pty Ltd ABN 19 608 602 277 are Authorised Representatives of Synchron AFS Licence No 243313 for Financial Planning Services Only.
The information contained herein is of a general nature only and does not constitute personal advice. You should not act on any recommendation without considering your personal needs, circumstances, and objectives. We recommend you obtain professional financial advice specific to your circumstances.
