Default insurance cover that is typically provided in superannuation is now mostly more expensive, often by as much as 25% or even 40%, than retail (advised) insurance, according to chartered accounting firm HLB Mann Judd.
The firm of accountants and financial and business advisers said that these policies were once a cheaper option compared to retail (advised) insurance.
Apart from pricing, given other uncertainties with default insurance in superannuation, the value of this option needs to be carefully assessed, says HLB Mann Judd.
The quality of the insurance coverage provided inside superannuation funds is an area of concern. The wording of advised insurance policies is typically superior to direct, group, and superannuation insurance, and provides a more appropriate level of coverage, the firm says.
In a statement, HLB Mann Judd said, “For instance, provided all premiums are paid when due, advised insurance is guaranteed to renew until the policy expiration, regardless of any changes to the insured’s health, occupation or other personal circumstances. In addition, once an advised policy is in place, policy wording cannot be changed to the insured’s detriment. Not so with insurance through a superannuation fund. In fact, it is far too common to see trustees of some superannuation funds, particularly industry funds, signing off on amended policy wordings that result in significant detriment to policy holders, and often without their knowledge.”
It adds that the Hayne Royal Commission, which is carrying out an inquiry into misconduct in the finance sector, has unearthed a fair share of shocking behaviour by Australian financial institutions – not least the most recent revelations about some life insurers and their questionable practices.
“Particularly alarming is the information that has come to light on the poor track record of many direct, group, and superannuation insurance policies when it comes time for policyholders to make a claim,” HLB Mann Judd said.
Advised insurance policies also allow for portability. Clients have the ability to move between superannuation funds, including to self managed super funds (SMSFs), without losing their insurance. In contrast, direct, group and superannuation insurance policies can be lost when a client chooses to roll their superannuation balance out of the fund.
As a firm, HLB Mann Judd believes that it is of utmost importance that its clients are aware of the insurance cover they hold, and the quality of the cover they rely on to protect them, and that they have the necessary detail to make an informed decision about their protection needs in the future. The chartered accounting firm is undertaking a review of clients’ insurance cover, to ensure clients are properly protected.