Lawyers call for super insurance safeguards
Safeguards need to be put in place so that people are not denied insurance cover because their superannuation accounts are wrongly identified as being inactive, according to the Australian Lawyers Alliance (ALA).
In a submission filed with the Productivity Commission (PC), the ALA warned that for many members of superannuation funds who had significant medical history, obtaining insurance cover in superannuation might be their only hope of having a basic level of insurance cover.
“Accordingly, it is critical that there are appropriate measures in place before a member’s insurance cover can be cancelled,” it said.
“In our experience it is not uncommon for superannuation funds to have an incorrect address or contact details for their members,” the ALA submission said. “Something more than merely sending mail should be required to ensure that all reasonable steps have been taken to warn a member before their insurance cover is cancelled.”
“In addition, while we believe it is good public policy to consolidate superannuation accounts when a member has an inactive account, it is also important to ensure that adequate protections for consumers are provided,” it said.
The ALA said it was well accepted that many superannuation funds across Australia have vastly different insurance arrangements.
“For many, a total and permanent disability [TPD] benefit is a single lump sum. One super fund we are aware of pays the TPD benefit in annual instalments over six years. Some other super funds do not pay a lump sum, but instead pay a long-term income protection benefit,” it said.
“If a fund member is transferred from one fund to another, there is a risk that they could suffer significant prejudice by losing valuable insurance cover and be left with an active fund account that has inferior insurance. An insurance product may be inferior due to a lower amount of insurance cover, more expensive insurance cover or inferior/harsher definitions and terms.”
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