The downfalls of group insurance through super
Whilst default insurance through super has its advantages, it also has many downfalls that most people are unaware of.
Recently I spoke to a new client who was perplexed that his Salary Continuance (similar to Income Protection) through Qsuper super had changed from a benefit period of 3 years to 2 years. They also increased their premiums considerably. Unfortunately for my client there was nothing he could do other than to move the insurance elsewhere as the group cover through super can be changed anytime by the insurer who has a contract with that fund. Whilst he is still healthy and was able to seek financial advice from an insurance broker like myself, not everyone is so fortunate as they may have health problems which prevent them from being able to move their cover leaving them worse off with no option to move to a better product. In this case he was able to take out a fully underwritten Income Protection policy with a benefit period to age 65 for a slightly cheaper premium than his Qsuper policy which only covered him for 2 years.
Retail Income Protection which is purchased through an insurance broker/financial adviser can also be paid for via super if this is the preferred option for the client. All Income Protection policies are underwritten before going into force and cannot be changed by the insurer as long as the premium continues to be paid. They are also non-cancellable and cannot be cancelled by the insurer except if they are not paid up to date. They are also generally tax deductible outside of super and have a maximum benefit period up to both 65 and 70 unlike Salary Continuance through super which generally only pays for a maximum of 2 years.
Whilst Life & TPD insurance through super normally provides a small amount of protection it is not enough when you consider the cost of raising a child and the average Australian home loan amount.
Trauma insurance is a policy that pays out a tax free lump sum amount on the diagnosis of a trauma event such as cancer, stroke, heart attack etc. Trauma cannot be taken out within super but can be attached to retail life insurance policies whether they are paid for via super or personally by the insured.
Whilst group insurance does have a role to play protecting people who otherwise wouldn’t seek financial advice, it has many disadvantages and is inferior to a fully underwritten retail life insurance policy.
If you have insurance through super and would like a review please give us a call on 1800 989 657 or email firstname.lastname@example.orgContact us for a quote