Recent changes to Total and Permanent Disability (TPD) insurance definitions for certain large industry super funds could have a significant effect on your future. Here, we explain what the changes mean for you.

Most working Australians rely on their superannuation fund to provide financial protection for their family in the event of death or disability. This is funded through life insurance paid from their superannuation account balance. In addition to this, most people rely on the default (automatic) insurance cover provided by the fund when they joined.

Historically, default insurance cover provided by large super funds was more cost-effective than tailored retail insurance cover organised by a financial adviser, as the large super funds could achieve greater economies of scale, despite the additional risk of the member’s health status not being assessed by insurers. However, this has changed in recent times, due to a combination of incorrect premium pricing over the years and an increase in insurance claims.

The result is that tailored retail insurance cover is often more cost effective, on a like-for-like comparison, than the majority of group insurance offerings from large super funds. Faced with the prospect of further significant insurance premium increases across their member base, some large industry super funds have decided to reduce premiums, by making it more difficult for their members to qualify for a claim. And it’s likely that other large super funds will follow this example in the future.

The Changes Explained.

Here, we highlight some of the changes that have been made to TPD insurance definitions within some of the largest super funds in Australia, and the impact this could have on members, should they need to make a claim. Most members probably wouldn’t even be aware of these changes and their implications.

Recently, Australian Super, Sunsuper and QSuper have all made changes to their TPD insurance definitions. These changes are designed to reduce TPD insurance premiums for members, but will also make it more difficult for members to successfully claim on their insurance.

The standard TPD definition within super is the ‘Any Occupation’ definition, which means a benefit will be paid in the event that the life insured is unlikely to ever return to work in a job for which they are reasonably suited by education, training or experience. 

Australian Super, Sunsuper and QSuper have introduced an additional requirement, which means the life insured will be assessed on whether they can reasonably be expected to be retrained to perform the duties of any occupation at all. This could create a situation where the success of a bricklayer’s TPD claim is assessed on whether he/she can be retrained as a receptionist, for example. This is unlikely to provide certainty in anything other than the most severe of disabilities.

These changes also mean that if the life insured is unwilling to commit to ongoing assessment reviews or to be retrained in a different occupation, their claim will be denied. There is also the issue around the interpretation of the definition, which creates significant uncertainty in the event of a claim.

It should also be noted that Sunsuper’s TPD benefit will no longer be a one-off lump sum payment. Instead, the benefit will be paid as annual instalments over a 5 year period. This creates further issues, particularly if the life insured faces large upfront disability expenses that exceed the annual payment limit.

These changes seem to indicate that these funds are more focused on appealing to prospective new members by offering ‘cheap’ default insurance, rather than looking after the interests of existing members, by ensuring they have good quality, effective insurance benefits.

If you have insurance cover with the super funds mentioned above, or any other industry super fund for that matter, it may be in your best interests to talk to us about your insurance requirements. We offer a complimentary obligation-free discussion, call 1300 ELSTON or email info@elston.com.au and someone will be in touch.