Introduction
Many people view superannuation as just a retirement savings tool. However, what is often overlooked is that many superannuation accounts include built-in insurance policies. If you’re unable to work due to illness or injury, don’t ignore your superannuation statements or emails from your superannuation fund. Take a moment to review your account—you might have insurance coverage you can claim to support you during this time.
What is Default Insurance in Superannuation?
Default insurance is automatic coverage included with many superannuation accounts. This means that when you open a super account, you often receive insurance once you meet certain eligibility requirements, without needing to apply or undergo medical checks. Common types of default insurance include:
- Total and Permanent Disability (TPD): Provides a lump sum (in most instances) if you become permanently unable to work due to illness or injury in your occupation or an occupation for which you have training or experience.
- Life Insurance (Death Cover): Offers financial support to your dependents if you pass away or to yourself if you are diagnosed with a terminal illness that has reduced your life expectancy to less than 12 or in some instances 24 months.
- Income Protection: Provides temporary income if you’re unable to work due to injury or illness. Note that Income Protection isn’t always provided as default cover and often requires you to opt-in, subject to eligibility and limited underwriting.
The advantage of default insurance is that it offers a safety net without requiring any action on your part—you may have coverage without even realising it.
Benefits of Default Insurance
Default insurance in superannuation has several benefits:
Peace of Mind: It provides financial security in case of unexpected events.
Accessibility: It ensures that many Australians who might otherwise be underinsured have some level of coverage.
Cost-effective: Premiums are often lower because they are based on group rates rather than individual risk.
Hassle-Free Premium Payments: Premiums are deducted directly from your super balance, so there’s no out-of-pocket cost.
Automatic Coverage: No need to apply or undergo medical checks.
Challenges with Default Insurance at Claim Time
While default insurance is beneficial, it can be complex when it comes time to claim. Here are some key challenges:
1. When Cover Starts
The Protecting Your Superannuation (PYS) package was introduced by the Australian government on 1 July 2019. The main objective of this legislation is to safeguard Australians’ superannuation savings from being eroded by unnecessary fees, charges, and insurance premiums, particularly in inactive or low-balance accounts or for younger members where insurance wasn’t deemed necessary. This legislation altered when cover could start, meaning insurance may only commence after your super account balance hits $6,000 and if you are 25 years of age or older. In addition to this, Insurers and Fund’s have rules regarding a contribution needing to be received to commence cover, with some funds specifically defining a Superannuation Guarantee Contribution (SGC), while others broadly state an employer contribution.
Why is this complex? We are currently handling a case where the customer had to pay SGC’s through the Australian Taxation Office (ATO) due to incorrect advice from their accountant. Despite these contributions being made, the superannuation fund has not activated the insurance cover. The insurance guide states that cover is triggered by an “employer contribution,” which is what the ATO has been passing on. This ambiguity, combined with horrendously bad service, has led to a formal complaint, with a resolution still pending.
2. Active Employment and At-Work Tests
Superannuation funds have varying criteria for “active employment” or “at-work” requirements to determine the eligibility. These tests essentially involve an assessment of you being able to perform or capable of performing your usual duties without restriction due to illness or injury when your cover starts.
Why is this complex? The criteria for performing your usual duties can vary significantly. Some policies may require you to have worked for just one day, while others might need you to work without restriction for 30 or even 60 consecutive days. In certain cases, the assessment is based not on the exact hours you worked but on whether you could perform your duties for a specified number of hours per week, such as 30 hours, even if your actual role required fewer hours. It’s crucial to understand both your employment status when your cover started and your ability to perform your duties without restriction, as this can impact whether your coverage includes exclusions, such as pre-existing conditions or limited cover provisions.
3. Limited Cover and Pre-existing Condition Exclusions
These terms mean your cover might exclude medical conditions that existed before your insurance began or changed. Understanding these exclusions is crucial to avoid unexpected issues when making a claim. The application of these exclusions can vary between funds. For instance, exclusions might apply if employer contributions were made after a certain period from when you first became eligible for cover. Additionally, exclusions may be in place if you have previously received or were eligible for Total and Permanent Disability (TPD) or terminal illness payments. They can also apply if you were unable to work for a period before your cover started or were receiving benefits from other sources at the time your cover began.
Why is this complex?: Understanding the complexity of default insurance provisions is crucial. You need to know your situation at the date your cover commenced to determine if any limited cover provisions or pre-existing condition exclusions apply. It’s important to check how long these exclusions were in effect, whether the exclusion period has elapsed, and if you met the conditions for the exclusion to no longer apply. There are tests at the commencement date, and sometimes you must meet certain conditions for a specific period from when cover started. If limited cover applies, understand its duration and whether you satisfied the requirements for it to be removed at the end of that period.
4. Other Exclusions
There are other exclusions to be aware of. For example, some policies may not cover you if your condition is related to pregnancy, or if you’ve previously received a TPD or terminal illness benefit. Additionally, exclusions might include conditions arising from self-inflicted injuries, participation in high-risk activities or sports, or if you are deemed unemployed at your date of claim. It’s important to review your policy documents carefully to understand all potential exclusions that may apply to your coverage.
Why is this complex?: Even though you have paid premiums, you may not have any cover at all, not even limited cover, at the date of disablement. For instance, we have had a case where the customer was considered “unemployed” at the date of disablement and thus unable to claim. There was no test for this, so someone transitioning between jobs or having a contract end was completely uncovered, despite premiums being paid. However, we were able to demonstrate that the person had been suffering for some time and was struggling to continue working, urging for the intent of the policy to be considered.
5. Cover Cessation
There are various reasons for cover ceasing. For instance, PYS legislation introduced for cover to cease if no contributions or rollovers are made within a 16-month period. Other reasons for cessation, besides reaching the benefit expiry age, could include factors such as changes in your employment status, joining the armed forces, or having insufficient funds in your account to pay premiums.
Why is this complex?: Your insurance could cease without you realising it. In relation to the PYS legislation, various funds have different rules regarding this. Some have adopted earlier periods such as 13 months or 12 months, so the 16 months under the legislation may not always apply. This means your cover could have ceased earlier than expected.
6. Changes to Cover
Even though your cover started under one set of policy terms and conditions, these terms could have changed over time. Funds are obliged to send Significant Event Notices of these changes.
Why is this complex?: The complexity arises because the assessment of the impact of these changes occurs at claim time. For example, there could have been definition changes that are less favourable or more favourable to you. However, your eligibility for these changes is assessed at a specific point in time, determining your eligibility at the date of the change. This means that you could have several policy documents, terms and conditions that apply to your claim, as the transition rules of these changes are explained. This can make it challenging to understand how changes affect your coverage and claims.
How to Check If You Have Default Insurance in Your Superannuation
It’s easy to check your default insurance status. Here’s how:
- Log into Your Super Fund Account Online: Most funds have online portals or mobile apps where you can view your insurance details.
- Review Your Annual Super Statement: Your annual statement includes details about your insurance cover, such as type, amount, and premiums deducted.
- Contact Your Super Fund: If you’re unsure, call your fund directly for specific details about your coverage.
- Use ATO Online Services: You can also view details of your super accounts via myGov. This can help you identify your superannuation fund or funds, allowing you to contact them to determine any associated cover.
For assistance, you can also contact Simplify My Claim. We can help you identify any insurance benefits, determine potential claims, and navigate the complexities to get the support you need.
Conclusion
Default insurance in superannuation is a valuable benefit, but it comes with complexities. While easier to obtain than a retail policy, it may have exclusions, eligibility requirements, and changing terms that can complicate claims. These factors are often assessed at claim time, which can delay the determination of your claim as these complexities are evaluated.
If you are off work due to illness or injury, contact Simplify My Claim. We can help you understand your insurance benefits and navigate the claims process to ensure you receive the support you need. As a crucial component of our service, we provide our customers with a Claim Expectation Guide, which highlights the relevant policy terms that may apply to your situation. With our expertise, we can also ensure that the insurer is provided with the required details upfront on these eligibility requirements to help expedite the claim decision.