Industry Super – might be cheaper but is it worth the risk?

If you are considering moving your superannuation and insurances to an Industry Super fund in order to save a few dollars, it’s important you understand the ramifications of Industry Super insurance cover. Please read the below and attached report that provides some insight into the different product offerings.  

You need to be aware that any insurance cover you hold through an Industry Super Fund (or any other group insurance type policy) you do NOT have control over the policy – the definitions and terms & conditions can be changed at any time whether or not it disadvantages you (the insured). A retail policy (like the one you would get through an adviser) cannot be changed in any way that disadvantages you – the insurer can upgrade the policy but cannot downgrade it. Hence why you can sometimes have a big difference in the cost of a policy depending on your occupation, age, etc. 

The other issue is that it is more difficult to get a claim approved through both the direct insurance channel as well as through group insurance (see attached ASIC report). There are two main reasons for this:

• First one, as I mentioned above, the policy definitions can change to make it more difficult to make a claim. 
• Second reason, the underwriting (checking your health & lifestyle factors) is done at time of claim instead of at time of application. It is always easier to say in hindsight that such and such led to your condition which you had prior to taking out the insurance cover. All group insurance policies will have a pre-existing condition clause even if you are not aware of any medical conditions. Some will also automatically exclude “mental illness” of any kind whether or not it was pre-existing.    

In terms of my own personal experience – one client I assisted had both an insurance policy through an industry super fund as well as one through another group insurance policy that I am the adviser for. The industry super fund insurer declined her claim whereas, with my help, we managed to get the other group insurance policy to pay the claim. She received 2 years’ worth of Income Protection payments back-dated and also got her TPD claim paid. I have first hand experience with how difficult it is to get a claim through with a group insurance policy which is why they are often cheaper.

Another example – A client lost his full-time job (his wife works part-time with 2 kids in school) and wanted to cancel both his Income Protection and Trauma cover to save money. After having a chat with him we ended up putting his Income Protection on pause (his particular policy allowed this) and we reduced his Trauma cover to $400K because his mortgage was down to $300K and he had plenty of re-draw available. A short time later, he calls me and tells me he has been diagnosed with Melanoma. He received the $400K payout within 4 weeks – paid off his mortgage plus had $100K left to pay bills, etc. Six months later, he tells me he has another job, no cancer cells in his lymph nodes and prognosis is good but he has 5 years of checks before he is fully in the clear. We reinstate his Income Protection (no questions asked, no underwriting, the policy continues as before). So if the cancer comes back, he is still insured via his Income Protection cover. He also has Life and TPD cover through his personal Super. If my client had decided to move to an industry super fund, not only would he not have received the $400K, his Income Protection, Life insurance and TPD cover would all now exclude any future cancer. He is now free of cancer, free of debt and working again.  

The big industry super funds have a lot of money to spend on marketing and spin so be careful about saving a few dollars as you may lose a whole lot more in the future. 

Click this link to see the ASIC Report referenced below – Life insurance claims: An industry review. This independent report clearly shows that there are a lot of non-advised clients and group insurance clients that have their claim denied – up to 29% of claims are denied. The retail insurance sector (i.e. ones you get through an adviser) is at worst 11% decline rate with the best insurers only declining 2% of claims. 

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1. Declined claim rates

Significant variations in declined claim rates suggest that some insurers (those with lower decline rates) may have better claims practices than others.

Specifically, these variations in declined claims are:

• by insurer (3% to 16% across all products);
• by product:
  • TPD, average 16% (range 7% to 37%);
  • trauma, average 14% (range 6% to 31%);
  • income protection, average 7% (range 3% to 16%); and
  • life, average 4% (range 1% to 13%); and
• by distribution channel:
  • non-advised, average 12% (range 4% to 29%);
  • group insurance, average 8% (range 7% to 23%); and
  • retail insurance, average 7% (range 2% to 11%).

Before you change, you need to compare both policy documents and Product Disclosure Statements to ensure you understand what you are getting. 

Sofie Korac
Financial Planner
Prudentia Financial Planning