Many Australians have default Life Insurance and Income Protection in their work super fund. This is probably an Industry super fund such as Cbus, Hesta or Care for example. Perhaps many even realise they have this cover, but I’d suggest not many realise the differences in the quality of the cover when it comes to Income Protection.
Just a few of the differences outlined below can have a life changing effect if something does happen:
Guarantee of Renewability:
Industry super funds have the ability to cancel your cover when certain events occur. If you were to claim on this policy they can simply decide to not cover you any longer. This puts you at potential risk of not being covered for a significant portion of your life.
A good quality retail fund will always guarantee your cover, as long as the premium is paid. This gives you peace of mind that if something happens (which it does) then you will keep your cover into the future.
Claim while unemployed
An industry fund will very often have a clause in their Income Protection policies that if you are unemployed for any reason, you will not be covered. This can be a holiday between jobs, a break between contracts or even potentially maternity leave!
A retail fund will provide full coverage for at least 12 months whilst you are unemployed, between contracts or on maternity leave…or indeed any other reason why you have become unemployed!
The way you pay your premiums can have a massive effect on future affordability of the cover.
The traditional stepped premium will increase each year as you get older, eventually becoming quite expensive. And sometimes because you absolutely need it, you just have to pay to keep the cover. On a Level premium, the initial premiums are more than stepped premiums, but usually provide long term savings, and the age increase factor is taken out of the equation until you are 65 and sometimes 70. This takes out by far the largest reason for increasing premiums each year. This provides long term affordability and the ability to keep cover later in life – when you are more likely to need to claim!
Industry funds do not offer Level premiums. Retail funds most certainly do!
Cover whilst overseas
Most industry funds do not allow you to remain overseas for any length of time to receive treatment whilst on a claim. In order to meet their definition, you must either be in Australia to claim or return to Australia for treatment.
Retail funds (subject to policy wording) allow you to remain overseas, even if you have relocated, to receive treatment and of course your claim benefits!
Three tier definition of disability
Most (but not all) industry super funds will only classify you as fully disabled once you can no longer do your occupation at all and needs to remain the case to continue the claim. This is fairly restrictive for members who want to get back to work in some capacity.
For example, there may be a member who wants and is only able to, work 1 day per week. They would mean they are no longer able to claim with an industry fund.
With a retail fund, they are much more generous. Most quality policies have a three tier definition of total disability:
• Initially, you cannot perform one important duty of your regular occupation
• 10 hour definition – allows members to work up to 10 hours per week whilst on full claim.
• Loss of income definition – allows member to earn up to 20% of pre-disability income without losing any claim benefits.
These definitions can vary slightly between insurers but are generally very similar.
This can have a massive effect on how well you return to work and survive financially in the mean time!
Awareness of the premiums and what you are covered for
Many industry super funds include Life insurance and Income Protection as a default policy for their members. This is a positive for many Australians that don’t have any cover at all.
However, these premiums often continue for many years for clients who have sought insurance from a retail fund. Therefore, there are potentially many workers out there paying for two policies income protection policies when they can only claim on one. Or they have more Life insurance than they simply need. These premiums are simply taken from your super balance and is eating away at your hard earned retirement savings!
The value of a good quality advice from an experienced financial planner or risk adviser can be invaluable. These are just a few of the issues that need to be clear to all Australians.
If industry funds don’t make it clear….let an adviser do that for you! Please contact our office if you have any questions.
General Advice Disclaimer
This article contains general advice only, which has been prepared without taking into account the objectives, financial situation or needs of any person. You should, therefore, consider the appropriateness of the information in light of your own objectives, financial situation or needs and read all relevant Product Disclosure Statements before acting on the information. Whilst every care has been taken to ensure the accuracy of the material, Paradigm Strategic Planning or WealthSure Financial Services Pty Ltd will not bear responsibility or liability for any action taken by any person, persons or organisation on the purported basis of information contained herein. Without limiting the generality of the foregoing, no person, persons or organisation should invest monies or take action on reliance of the material contained herein but instead should satisfy themselves independently of the appropriateness of such action.