The Superannuation Consumers' Centre (SCC) at CHOICE says an independent inquiry is desperately needed to figure out how best to protect people who can no longer work.
"Some life insurance policies sold by default as part of people's superannuation are failing to protect people and their families", says Xavier O'Halloran, Director of the Superannuation Consumers' Centre.
"After years of paying for insurance, you should be able to rely on your fund to support you if you can't work due to health conditions. But the life insurance industry has prioritised profit over wellbeing, leaving Australians out of pocket and under–covered."
"To date there has been no holistic approach to figure out the needs of people who can no longer work due to disability. Instead we've had a mix of overlapping public and private schemes with no thought to what is the most efficient and importantly, equitable way to look after people"
"Life insurers and super funds have been treating our insurance like a magic pudding, hollowing out policies to give them a veneer of affordability."
Product design is a real concern, with the Productivity Commission finding almost 80% of funds do not collect information on whether their members have dependents.
"When designing appropriate life insurance understanding when people have children is one of the most important things a superannuation fund can know. The overwhelming majority of funds are oblivious to this basic information. This raises serious questions about how seriously they are taking their best interest duty when designing insurance" says O'Halloran.
In a joint submission to the Treasury, the SCC and the Financial Rights Legal Centre said there has been a "clear drift away from community expectations".
The life insurance system is complex to navigate, with terms, definitions and exclusions buried in the fine print. These vary between policies, making it difficult for people to compare products. As a result, people are being signed up to policies without fully understanding what is and is not covered. For example, some policies include fine print that would make a person ineligible for Total Permanent Disability (TPD) cover once they have been out of the workforce for over 6 months.
"In most cases people are paying the exact same premiums but having the quality of cover stripped away from them because of an arbitrary term hidden deep within a policy," Mr O'Halloran says.
Read the submission to Treasury from the Superannuation Consumers' Centre and the Financial Rights Legal Centre.
Media Contact: Eleanor Barz, (02) 9577 3258, email@example.com
Out of office hours Media Contact: Jonathan Brown, 0430 172 669
The consumer advocates' submission calls for:
- A ban on delivering Total Permanent Disability (TPD) benefits as instalments rather than as a lump sum
- Universal terms for life insurance policies, including a single standardised definition of TPD
- An independent inquiry to determine the extent to which funds meet community needs
- Independent research into the rates at which people return to the workforce after receiving TPD benefits