TPD Insurance within Superannuation

Pros

Cons

Auto Acceptance.

When taking cover through a group superannuation account, cover may be available on an ‘auto acceptance’ basis.  Employer, or industry fund usually fall into this category.   The requested cover comes into force without having to provide personal statements and medical reports.

Premiums for cover under this type of acceptance are at ‘standard rates’.  This means there won’t be any loading for Smoker status/ health issues, applicable to the applicable industry/ occupation code.

Cashflow

You pay your insurance premiums from your superannuation account balance.  They have no impact on your personal cashflow.  This makes them more affordable.

Group premiums

Insurance policies owned through grouped superannuation accounts are provided at lower premium cost.  Industry funds, employer groups and some ‘platforms’ offerings fall into this category.  This is achievable because of the volume of business secured by the insurer through the particular source.

On leaving an employer group, premiums payable for policies held in your super account will often be charged at a significantly higher cost.  This arises when the accepting insurer declares you a Smoker. (This can be rectified in appropriate circumstances and you should seek advice on the matter.)

SMSFs

For trustees of a self-managed superannuation fund that has invested in direct real property (whether or not subject to borrowings external to the fund) there is an advantage to protect the assets of the fund for the contingency of the untimely total and permanent disability of one of the members.

This is particularly applicable to a member with a disproportionately high contribution to the ability of the fund to meet its commitments (because of higher contributions made by or on their behalf).

*Claims are initiated through the trustee to the insurer.  Payments eventually then flow from the trustee to the member: this can cause (stressful) delays.

Compulsion

Members wanting to insure through a superannuation account, for a TPD event are required to also hold a Life (Death) policy through the same account.

Occupation Definitions

There are two occupation definitions^ that apply to potential claims under a TPD policy: they are ‘any occupation’ and ‘own occupation’.  Any new TPD policy taken by the trustees of a superannuation fund must be issued on the ‘any occupation’ definition. The features of policy arrangements designed to provide more complete cover under an ‘own occupation’ definition are dealt with below.

^ Under the ‘Any Occupation’ definition, a claim will generally be paid if you’re unlikely to be able to work in any occupation that you are suited to by education, training or experience. A claim under the ‘Own Occupation’ definition should be satisfied when you’re unlikely to be able to work in your current occupation.

Trustee variations

The above point is of particular concern if you are insured through an employer group plan or an industry superannuation fund: under these arrangements, the trustees negotiate terms of the policies they offer – and they retain the right to vary those terms without notice to their members.

There are a number of instances where members have been exposed to lesser protection because of actions taken by trustees to reduce premium costs: one that we became aware of in November 2014, was Australian Super, who adversely varied the generally applicable definition shown above, by changing ‘unlikely’ to ‘never’; and added the rider – ‘or any job they may become suited to.’