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Junk TPD insurance set to return in 2021

Consumer protection measures put in place during COVID-19 are about to expire.

Last updated: 22 December 2020


Checked for accuracy by our qualified fact-checkers and verifiers. Find out more about fact-checking at CHOICE.

Need to know

  • Insurance industry group Financial Services Council had pledged that insurers would not enforce restrictive terms for people out of work due to COVID-19 during 2020
  • Before this temporary reprieve, people not working, or working limited hours, faced a tougher test to claim on total and permanent disability (TPD) insurance in their super
  • The reprieve ends on 1 January 2021, but Super Consumers Australia is calling for a permanent end to junk insurance in super

Some life insurers offering insurance through super have seemingly made the worst kind of New Year's resolution – to bring back TPD junk insurance in 2021.

As the pandemic hit in 2020, the insurance industry agreed not to enforce restrictive tests for people out of work due to COVID-19. Without this measure, many would have faced an uphill battle to claim total and permanent disability insurance through their super. 

The restrictive terms applied to people who were unemployed or working limited hours, and meant they faced a much tougher test to claim. 

ASIC found this group had claims declined five times more often than people in full-time work.

'Restrictive tests have no place in TPD insurance'

The Financial Services Council (FSC) announced the temporary reprieve on 19 May 2020. It ran until 27 September 2020, and was then extended to 1 January 2021. Claims must be lodged by 31 March 2021 to benefit from the initiative.

"Restrictive tests have no place in TPD insurance – during a global pandemic or at any time," says Super Consumers Australia director Xavier O'Halloran.

"With the Reserve Bank of Australia projecting unemployment will remain high well after the end of this year, many people will again be paying for insurance through their super that is essentially junk."

Which funds are getting rid of their junk insurance?

Super Consumers Australia wrote to 20 superannuation funds who apply the more restrictive test to people who've been out of work for three months or less.

We asked them if they would commit to getting rid of this junk insurance for good. The table above shows their responses.

It's clearly not in the best interests of fund members to have their retirement savings eroded by insurance cover that won't help them in their hour of need

Xavier O'Halloran, Super Consumers Australia

Sunsuper, Colonial First State and Unisuper have all removed the restrictive terms in their TPD insurance or are in the process of removing them.

LUCRF, VicSuper (now part of Aware Super) and Smart Monday by Aon have all committed to remove these terms.

Some funds have only committed to reviewing their insurance. 

Prime Super didn't make any commitment to review its insurance.

"We're calling on all funds to remove these restrictive terms which mean that many Australians are paying for worthless cover," says O'Halloran.

"It's clearly not in the best interests of fund members to have their retirement savings eroded by insurance cover that won't help them in their hour of need."

Super Consumers Australia will continue to monitor the individual commitments made by these funds to ensure they remove these restrictive terms and stop Australians paying for junk insurance.

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This content was produced by Super Consumers Australia which is an independent, nonprofit consumer organisation partnering with CHOICE to advance and protect the interests of people in the Australian superannuation system.