On the one hand, we are pleased that the Government has taken steps to ensure that insurance in superannuation remains more affordable and sustainable and the abolition of exit fees is a good initiative. However, we have significant concerns that very large numbers of working Australians will lose valuable insurance cover.
Most working Australians have TPD insurance (and life insurance) in their super. TPD insurance would ensure that someone who is sick or injured and unlikely to be able to return to the workforce, would receive a lump sum payment. These lump-sum amounts can be substantial.
Under the new rules, anyone who has an account balance which has not reached $6,000 will not receive automatic insurance cover, even if they’re actively contributing to their superannuation account.
Who will be most affected by recent Federal Budget changes to insurance through super?
This measure will have severe consequences on many people who are already vulnerable. Low income workers such as new migrants, single mothers, indigenous Australians and casual workers are more likely to have low superannuation account balances under $6,000, and therefore will not be covered by default disability insurance.
Whilst we agree that people under 25 years old should not receive default death insurance because it is poorly targeted, we think it important that consideration be given for under 25’s to be covered for disability. People don’t get to choose when they get sick and young people with a disability shouldn’t be unfairly disadvantaged.
This proposed reform will mean that the most vulnerable low-income Australians will lose valuable insurance cover. That’s not right and should be fixed.
There is a need to prevent account balances from erosion and to ensure that insurance in super remains sustainable. Insurance in super remains the most effective method of delivering sickness and injury insurance to working Australians and protecting the taxpayer from the under-insurance problem.
If people are actively working and contributing to their super fund, they should receive affordable default disability insurance cover no matter what their account balance or level of contributions is.
Some of these budget measures may also have the unintended consequence of increasing the cost of insurance within super and exacerbate the underinsurance problem in Australia.
The Government should work with the life insurance & superannuation industries to come up with a sensible compromise which provides valuable and targeted
insurance cover at reasonable rates.
If you’re having any issues with your superannuation insurance, whether it be a rejected super TPD claim, a delayed claim process or any other problem, feel free to get in touch with today’s blog writer, superannuation and insurance lawyer Paul Watson.