Insure your choice

The introduction of super choice will give financial planners an opportunity to demonstrate the value of insurance benefits, and hopefully increase general awareness among consumers.

Australians are chronically under-insured, with latest estimates from AXA Australia showing that death cover for the average individual is only 29 per cent of that required.

The Federal Government has also recognised the need for greater personal risk management, and has issued new rules relating to the default funds offered by employers in the choice environment. From July 1, 2005, default funds must provide a minimum level of cover of at least $0.50 per week, or provide prescribed amounts according to age (see table). This requirement applies to death benefits only.

According to AXA’s head of superannuation and retirement incomes Andrew Barnett: “Choice effectively introduces options. Without options there’s less incentive to evaluate your needs against your arrangements — and that includes insurance as well. But with options, even if you don’t exercise them, individuals have a greater tendency to get more information. So even if they don’t take up choice, I expect a greater awareness of the cover that people have.”

The provision of insurance benefits can potentially have a huge impact on the decision to change super funds. Comminsure’s executive manager business growth Jeffrey Scott explains: “When people move funds, there may be different acceptance limits. For example, if an individual started out with one particular super fund when they were healthy, they may have been entitled to a $500,000 benefit without having to provide proof of health. If moving when they are older, the same benefit might only be $50,000 without proof of health.”

While employer funds will have to offer a minimum level of life insurance, income protection and total and permanent disability (TPD) cover are less widely available and, as such, consumers have less understanding of how they work.

Scott estimates only around a third of company schemes give income protection benefits, and he points out that there is some confusion around the policy itself.

“Most people believe that if they are off work their employer will pay income protection benefits indefinitely. What people aren’t aware of is that if you have insurance through your employer super fund, your income protection ceases after two years.”

So will insurance become a super selling point? For advisers definitely, Scott says.

“When they sit down with a client and advise them on changing funds, they will be saying ‘let’s look at your insurance as well’. But I think they will sell more retail policies, rather than getting insurances through super.”