Ben Day, specialist risk adviser of Fitzpatrick Financial Services, discusses the pros and cons of clients holding insurance within their super compared to holding retail policies.
Does insurance have a place in superannuation?
Insurance and superannuation work well together, enabling clients to easily maintain their insurances by assisting with cash flow, as well as providing vital benefits like binding nominations on death. It’s very important that the individual considers their final retirement benefit and makes extra contributions to super to cover the insurance cost and ensure they maximise their retirement savings.
Is there any benefit in clients relying on default insurance cover inside their superannuation?
Default cover is a great benefit under many superannuation funds and, as I said before, can help you easily maintain cover through super. Clients should be able to rely on this cover, although it is crucial that they check the wording and policy benefits first. Default cover sometimes has poor policy wordings and definitions; it sometimes has hidden issues like pre-existing condition exclusions that could provide nasty shocks at claim time. One other serious issue to consider before relying on default cover is, ‘What is the sum insured and is it adequate for my needs?’ I’ve seen many circumstances in which the default cover has been totally inadequate for the client’s needs.
Is the minimal underwriting for group insurance policies in superannuation an issue for clients?
Only if there is ‘claim time underwriting’ involved (pre-existing condition exclusions). If the fund’s insurance provides full cover with minimal underwriting, this is a great benefit. Once again, if this is available it is often for a minimal level of cover; the client should look at their own personal needs to ensure the cover provided is adequate.
Should there be greater disclosures from insurers and respective super funds on group insurance and whether or not a client may be covered?
Absolutely. I’ve met so many clients who believe they are fully covered under a policy that offers limited cover, short benefit periods or inferior definitions.
How do you think advisers can help clients to understand the difference between insurance inside super and a retail policy?
We provide a full comparison and do extensive research to ensure clients have a great understanding of the cover they have and the cover that is available in the retail space. Clients need to fully understand what it is they have and what they could have, so they can make considered and informed choices.
What can advisers do to foster greater engagement with retail life insurance?
Continually highlight the benefits of retail insurance that aren’t available inside super, like agreed value income protection, which can make a huge difference in a claim, and own occupation TPD, which can often be the difference between a TPD claim being paid or not. Trauma insurance, which is so often overlooked, can provide individuals and families with massive benefits at claim time.
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