More than 12 million Australians have total and permanent disability (TPD) insurance through their super.
Many people don't even realise they have this insurance. Very few people understand what they're covered for.
In some cases, the insurance can be very useful for people who can no longer work because of illness or injury, helping them to pay their bills and go about their life with dignity.
But this insurance has little value if you can't claim on it.
What happens when you make a TPD claim
When you make a claim on your TPD insurance, there are two basic types of tests that can apply.
Most people have to pass the standard test.
Some people, however, face a much tougher test known as the activities of daily living (ADL) test. It's extremely difficult to succeed in a claim where this test applies, so for most people it makes the insurance junk.
A recent report found the decline rate on claims for people facing the ADL test is five times higher than for people doing the standard test.
There are also some tests which are very similar to the ADL, such as the activities of daily working or the everyday working activities test.
Generally, everyone pays the same for insurance cover, whether the standard test or the ADL test applies to them.
Super funds and insurers haven't made it easy for you to work out if the ADL test applies to you and makes your insurance junk.
How do I find out if the ADL test applies to me?
The test that applies to you will depend on your circumstances when you make a claim. For example, if you take out the policy when you're working full-time, but have moved to part-time employment when you make a claim, the ADL test could apply.
Often, it's difficult to even find the details of the insurance in your super.
The details may be in one of these documents:
- The super fund's product disclosure statement (PDS)
- The super fund's insurance guide (or insurance booklet)
- Additional information guide
- Reference guide
- Another booklet, for example, How Your Super Works
Many of these documents are very long. AMP's insurance guide, for instance, spans 95,000 words, much longer than the first Harry Potter novel. You would also need to refer to an insurance schedule AMP sent you when you joined the fund to see which test applies to you.
So although you can read the relevant documents to get more information, they're very complex and vary from fund to fund. Because of this, we strongly advise contacting your fund to find out what kind of TPD insurance cover you have through your super.
Check with your super fund if your job is listed as 'hazardous'. If it is, you could be paying for junk total and permanent disability insurance.
1. Your job may be listed as a 'hazardous occupation'
One of the main ways insurers create junk insurance is through the 'hazardous occupations' or 'special risk' list.
If you work in one of the jobs listed here (or if you have multiple jobs, but one of these is your main job) you'll have to pass the nearly impossible 'ADL' test instead of the much easier standard test.
Some of the jobs listed are not commonly thought of as particularly dangerous. For example, some super funds list musicians among the hazardous occupations. More commonly it includes occupations such as airline crew, labourers, and factory workers.
The hazardous occupations list may be part of your insurance guide or it may be a separate document.
Note that some funds have a list of hazardous occupations that aren't eligible for additional TPD cover, but will be covered in the default TPD insurance you automatically get when you join the fund. Again, you should consult your fund if you are unclear what test would apply to you.
2. You work less than full-time hours
People in part-time, casual or seasonal work often have the ADL requirement in their TPD insurance.
Typically you have to work a certain number of hours a week to avoid this junk insurance trap. Many funds set the required hours at 15 hours a week.
Casual and part-time workers are often paying for junk TPD insurance through their super.
3. You've been out of work
Depending on the fund, being out of paid work for a period of six, 12 or 13 months may land you with a junk insurance policy.
This can also apply to people who've gone on parental leave or leave without pay.
People out of work have insurance that is less valuable, but they may not be paying less for it.
Other tests you may face to prove TPD
People with pre-2014 super accounts
There were big changes to insurance in superannuation in 2014. Some people still have old definitions that applied before these changes.
We encourage people who received insurance through their super prior to 1 July 2014 to contact their super fund to find out which test applies.
People doing home duties
People who care for children and do domestic duties may also face a different test, such as a 'home duties test'. This can also be very restrictive.
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.
Stock images: Getty, unless otherwise stated.