On 17 May 2016, QSuper announced changes to its insurance coverage within superannuation accounts. These include changes to income protection, death benefits and total and permanent disability benefits. I discuss here briefly the key TPD changes.
Unfortunately, this comes on the back of recent changes made by Sunsuper and its insurer AIA Australia. The tides of change seem to be moving towards significant re-organisation of insurance products within superannuation. I would not be surprised if this is just the beginning, and more superannuation funds make their insurance products substantially less beneficial for their members.
When is the change effective?
The change was effective from 1 July 2016.
Total and permanent disability changes
On a positive note, the maximum cover for TPD has been lifted to $3 million from $2 million. To have a level of cover higher than the default cover, it is necessary to apply for additional cover to QSuper, which will mean a higher premium for such cover. It is a bit unclear, but it seems that the cost of TPD cover has been reduced.
The clincher, however, is the changed definition for TPD. The new definition requires a person to show that they are unlikely to return to work again in a job for which they are reasonably qualified by education, training or experience that they have “acquired or could reasonably be expected to be able to acquire in the future within a suitable rehabilitation/retraining program”.
A few points on this particular amendment:
1. What is meant by “could reasonably be expected” to acquire education, training or experience?
2. These days there are endless ‘colleges’ and online registered training organisations that provide easily accessible courses, but their value is questionable and highly unlikely to result in employment.
3. Who determines what a reasonable rehabilitation or retraining program is? As noted above, there are many spruikers of training and education courses.
4. How far into the future will QSuper look?
5. Who pays for the rehabilitation and retraining? Obviously a person applying for TPD has been out of work and is unable to work, therefore chances are they will have little money to pay normal bills and their mortgage, let alone rehabilitation and retraining.
The ‘activities of daily living’ definition has also been amended to be far more specific as to the activities one is unable to undertake before proving TPD.
Reformulating total and permanent disability cover
The difficulty is that most people believe, incorrectly, that their TPD insurance covers them if they can no longer return to their job. Unfortunately the standard TPD policy in superannuation is much broader. The insurance policies offered by superannuation funds are lengthy and complicated, with people given no advice about them. In fact, I have often spoken to clients who have never even seen the product disclosure statement (PDS) or changes to their policy because notices are emailed and contain links to documents sometimes over 100 pages long.
Often as default cover, people do not realise that they are actually paying for this insurance product, but it may be inappropriate cover for their circumstances.
TPD (and income protection) insurance are critical, in my view, to protect people’s livelihoods. Unfortunate incidents can happen to any one of us without warning. While the idea of superannuation providing this cover is great, as people do not have to spend money directly from their pocket for the insurance, it is high time that these products be carefully examined and reformulated.
I do not profess to hold the answers, but I do believe that merely emailing a link to a PDS or directing a person’s attention to a large document on a website is not appropriate. As a lawyer, I have enough trouble reviewing such lengthy documents and making sense of them, let alone a blue collar worker or retail shop assistant, who may have year 10 or year 12 education and no experience or interest in legal or insurance matters. Moreover, superannuation funds do not provide their members with a copy of the actual insurance policy – this is distinct from the PDS, because it is the policy that governs the cover (i.e. it is the contract), not the PDS.
Sunsuper and AIA Insurance started this trend of recasting TPD cover, followed closely by QSuper. I don’t think we have seen the end yet. They may well sell it as a way to reduce insurance premiums, but it also significantly limits the circumstances in which unsuspecting members are actually covered should their livelihoods be destroyed.
Greg Spinda is a partner at Carew Lawyers.
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