Group Insurance – Are you really covered?
Some hard truths about Group Insurance
You don’t own the policy. The Trustees of the Superannuation fund of which you are a member owns the policy – you are simply a ‘life insured’
Many Australians are paying for insurance cover in their Super Funds. Chances are, you are too. You may not know whether or not you have it, what it is, how it works or what options you have. Unfortunately, there is very little to no effort by the Super Funds to explain any of this…… and for good reason.
Below are some cold, hard truths about the insurance you are paying for from your Super money and the benefits you get from taking out a fully underwritten policy that you own.
Unless you applied for the cover yourself and underwent an underwriting and acceptance process, the cover described in your statement is not yet underwritten. This means that the insurance company knows nothing about you and will take you through the underwriting process at the time of claim
As well as the Trustee, the government can (and have) force material changes to the Group policies held in your Superannuation
Effective 1st July 2019, any group insurance held in “inactive” Super fund (an account will be considered ‘inactive’ if it has received no contributions or rollovers for 16 consecutive months) will be automatically cancelled unless you specifically request for it to remain active.
This, of course, presents the risk of you losing cover that you thought you had. If you miss the letter, email or other notice issued by your Super Trustee, you could find yourself without any cover at all without even realizing it.
What are the contractual Terms and Conditions of my insurance cover?
Firstly and most importantly, YOU DON’T OWN THE INSURANCE – IT’S NOT YOURS. Remember, it’s owned by the Super Fund. Because you don’t own it, you don’t get a Product Disclosure Statement (PDS) which details the legally binding terms and conditions of the cover. In fact, there is no PDS at all because a Group Insurance policy is a commercial agreement between the Super Fund and the Insurer. A PDS is only required where a consumer is engaging a financial product provider. The owner of the cover is not a consumer, thus a PDS is not required.
Now, let’s look at the alternative ………
The benefits of a fully underwritten, individually owned insurance policy
One important distinction between Group Life insurance and Retail Life Insurance is that retail insurance is sold as a “guaranteed renewable” product. This means that insurer must maintain the insurance product for as long as the policy holder pays the premiums. The law also prevents the insurer from degrading any of the terms and definitions of a guaranteed renewable insurance policy without the consent of the policyholder. These protections are not provided under Group Insurance.
General advice warning: The information contained in this document is of a general nature only. It is not intended to be comprehensive nor does it constitute legal or financial advice. It does not take into account any particular person’s objectives, financial situation or needs. Before acting on this information, you should consider the appropriateness of this information having regard to your personal objectives, financial situation or needs. The information contained in the document is provided by My Safeguard. PSJR Holdings Pty Ltd ATF PSJR Holdings Unit Trust T/as My Safetguard. Corporate Authorised Representative of Wealth Today Pty Ltd Australian Financial Services Licence No 340289
The biggest risk with this structure is that the Trustees can make alterations and even cancel insurance cover without your consent and even without your knowledge (assuming you didn’t read the letter, email or paragraph added to your annual statement). A real-life example of this occurred with Australia’s largest Industry Fund and one of Australia’s largest insurers.
The risk with this approach is that the insurance company only finds out about you at claim time. They will then begin the underwriting process – this is the process undertaken by them to decide whether or not they want to cover you.
This process results in two core risks:
1. Your claim will be delayed while they investigate your medical, lifestyle and family history
2. If they find something they don’t like, they can avoid paying the claim altogether
Cost vs benefits – does it make sense?
Group Insurance policies are provided by commercially run life insurance companies – the same companies which provide individually owned and fully underwritten polices (“retail policies”). Logic would dictate that the cost for a group insurance policy should therefore be equivalent or at least similar to a retail policy held by an individual for the same benefit value. After all, if all claims across group and retail were assessed and paid in the same manner, there should be no material difference in outcome, thus there should be no material difference in benefits paid, therefore no material difference in premium cost.
Interestingly, this is not the case.....does that make sense?
So which type of insurance are you happy with? To help you decide, here’s a snapshot of the key aspects of each:
It’s low cost
You don’t own the policy
Your Super fund can change or even cancel the policy at any time without consent
You are not underwritten
You are not privy the underlying terms and conditions
The sums insured are arbitrarily allocated to you without regard to your personal needs
Its a bit more expensive than Group Insurance – you get what you pay for
You own the policy
Your cover is protected. The insurer cannot make any changes which degrade the terms of your policy
Your cover is guaranteed renewable
You are fully underwritten and know exactly the terms of which you are accepted
You receive a fully detailed and legally binding PDS which spells out all the terms and conditions of your cover, so you know exactly what you are covered for and under what circumstances you are eligible to claim
You choose the level of cover to fit your personal circumstances
The choice is yours………….. we’re here to help you when you’re ready