Anne Fuchs: Hello and welcome to Super Insider, a podcast series about all things to make sure you get the most out of your superannuation so you can live your best possible retirement. My name is Anne Fuchs. Today we're talking about insurance. And of course, before we do that listeners and viewers, please remember this is general advice, and general information only. You will need to decide if it’s right for you.
Kane Everingham: Thank you, Anne. Welcome, everybody, and thank you for joining us in today's episode of Insurance Inside Superannuation. My name is Kane. I am joined by my colleague April.
April Smith: Hello.
Kane: We are part of the education team here at Australian Retirement Trust. In my time speaking to lots of people as I've travelled around the countryside whenever the topic of insurance comes up most of my audience tends to hit the snooze button. I just want to share a little personal story on why insurance can be so important. I was recently driving with my family, the car came off second best with a little bit of wildlife, but I was able to relax. Even though it was annoying that the front of the car was busted up, I was able to get it fixed up under insurance, got the car back good as new and I had that peace of mind because I had car insurance.
Inside superannuation you can have insurance, and they can cover things like protect your family, protect your income, protect your assets and certainly give that peace of mind; if something unexpected does happen, insurance is there to help you, and your family get through it. I do want to highlight that we're only focusing on insurance that you can get inside superannuation today. You can have the ability to have insurance outside of superannuation. Obviously as superannuation experts we're just going to focus on insurance inside superannuation today.
The 3 types of insurance that you can have inside your superannuation are total and permanent disability or you might hear the term ‘TPD’. Income protection or, again, shortened to IP, and the last one there is death cover, or some companies call it life cover. April, I might throw to you to take us through what is total and permanent disability.
April: Otherwise known as TPD. I'll start with a story here first. I do know a gentleman who, at the age of 55, was deemed unable to work again in his occupation. He was going to be leaving his partner with $200,000 on the mortgage, and she was just an average income earner. If he didn't have any insurances, a single income wouldn't have been able to keep the lights on the house as well as pay off the $200,000 mortgage. Fortunately for him, what he did have is his insurances. He claimed those insurances; they were able to pay off the mortgage and his partner's income was able to keep the lights on and not having that mortgage over their head. That's why it's really, important. If something happened to you or me, what's going to happen? That income is no longer coming through so we can't really support our families the way that we'd want to.
Total Permanent Disablement (TPD) is basically either you're unlikely or you're unable to work again in any occupation. This is where it's important to look at the policy that you hold and the definition of ‘total permanent disablement’. What you also want to know is how are you going to get paid. Is it going to be paid as a lump sum payment or is it going to be an annual support payment? If you are paid out for TPD, or total permanent disablement, maybe you might have options as to how that is paid. Maybe instead of a lump sum you might ask for an income so that it stops that loss of income. But there is the IP, or income protection. Kane, can you please take it away for income protection?
Kane: When it comes to income protection it is, as the name implies, designed to protect your income. If I were to ask most people, ‘What's your biggest asset?’ most people would probably answer that it’s their home. But it is your ability to earn an income. If you think about all the years that you work and how much you earn each year, that is oftentimes going to add up to be way more than whatever house you end up in. So, protecting your income, protecting your ability to earn an income, is massive. That's the role income protection plays. It's designed more to protect you from short-term injuries. For example, if I blow my knee out, I'm off work for 6 months and I can't do my job, income protection will cover some of my income just till I get back on my feet and get back to work. It's designed for those short-term injuries or illness where I will recover, and I will get back to work. That's what your income protection is. April, I'll throw back to you now to cover the last one there, death cover or, as I said, some companies call it life cover.
April: Death cover or life cover, depending on how you look at it or what the policy states and what it's called, is there for if, for example, something happened to me; I'm leaving my spouse and my children in this world with a mortgage. I want to make sure that they still maintain the same lifestyle as they do have at the moment. I’ll look at my debts and what assets we have. I want to make sure that my loved one receives my superannuation—you'd be paid out my superannuation—plus any death benefit. That's really, important. You might also be covered for terminal illness. A terminal illness is where a doctor or a specialist will need to say that you've got either 12 months to live or 24 months to live on your policy. Then you can go through, and you can claim your superannuation and you can also claim your insurance. That's really, important. Far too often we do see on social media those GoFundMe pages where people are relying on the support of strangers just to get them through and just to stay in the same neighbourhood.
When you are submitting a claim always ask your case manager what information you need. Rely on them for support, because it is quite an emotional time. If it is paid out on terminal illness it is paid out tax-free. One of the other important things to notice, though, with death cover or paid out insurances is who's going to receive those funds in the event you pass away. What you may want to look at doing is nominating a beneficiary on the account. What people aren't aware of is that superannuation doesn't automatically form a part of the estate. If you've got a will in place, it doesn't automatically go to the will. What you want to do if you want a little bit more certainty on who's going to receive those funds is nominate a beneficiary or even a legal personal representative so that it does go straight to your estate. That's really, important to understand.
We've talked about death cover, total permanent disability and income protection. But, Kane, can you go through why insurance is even part of superannuation?
Kane: Australians are notoriously underinsured. We don't want to pay for something. If I've got insurance outside super, I'm paying for it out of my weekly pay packet, and we don't want to do that. The government recognised this some time ago. With superannuation there's a requirement for super funds to offer a level of insurance inside superannuation. It's on an opt-out basis. Again, if you don't want it, you can cancel it. You can certainly look at customising it. Often, it's an automatic or a default level of cover. It might be a bit more basic. It may not be appropriate for you but just check with your superfund if you can adjust that. How can you customise it to suit your needs? That is often a good way to go.
Also, having it inside superannuation can often be more cost-effective. If you think about super funds, they've often got lots and lots of members. Effectively they can get that buying in bulk principle, or group insurance rate, which can be very competitive compared to if you go and get a policy under your own name just for yourself. They're probably the key reasons why insurance is now offered in superannuation. A lot more Aussies now have insurance where they wouldn't have had it previously if they had to pay for it out of their pay packet.
There was some legislation brought in. I'll use the term PMIF, April. If you can explain to our listeners what the heck PMIF is, I'll throw it over to you.
April: PMIF is Putting Members’ Interests First. This is a legislation change. I've worked in superannuation, and 12 years ago I had 5 lots of superannuation accounts all being charged multiple insurances. My superannuation was being depleted in fees. What they said is, ‘We will activate this insurance at a certain age, and that age is 25.’ And your balance needs to be more than $6,000. If you're in a dangerous occupation that may automatically apply to your account. So, it’s always good to check. Do your homework: ‘Do I have insurance?’
I want to tell you a story. My background—I worked in travel claims. I've dealt with a few different claims myself. I remember a young 20-year-old who ran a tuktuk into a bollard over in Thailand. If you think about him, if he was deemed totally and permanently disabled, he's still got maybe another 60 years to live. Just because this PMIF or Putting Members’ Interests First legislation came through, it doesn't mean that insurance is less important because you're under the age of 25. You might be starting out a family. You might be buying your first home. What's going to happen if something happens to me? If you want to put it on the account earlier, you can permanently opt in to that insurance. It’s really, important to understand that you can go in and personalise that cover.
You may be able to personalise all your covers. Maybe you might not need death cover, total permanent disability and income protection. Maybe you might need all of them. Maybe you might need one or 2. Go through these and ask your super fund, ‘How can I personalise this insurance?’ For example, you might want to look at your assets, income and dependents and change your level of cover. Also, with income protection can I choose a waiting period? It might be either a month, 2 months or 3 months. That's where you think about how much sick leave do I have? How much annual leave or long service leave. If you’re just starting off in the job, you might want a shorter period because you don't have that time to wait without an income. Maybe if you've worked there, for example, like me, for 12 years, I might be able to be off work for 3 months. Every time that you do adjust those insurances the premiums will change. What I would also suggest is to ask your super fund if you can get a discount based on your occupation. You may be able to occupationally rate yourself, which means discount which also means more money in retirement. So, just check in with your super fund, do your homework and see what you can do.
Kane, I've gone through personalising your insurances and making sure that you and your loved ones are covered. What do we need to be mindful of, though, with restrictions and limitations on superannuation?
Kane: Good question, April. You've just heard April talk about the way that you can often personalise or customise your own insurance. Insurance policies offered by different super funds and insurers are essentially customised. They can have different features and benefits. It's important to have a look into what that insurance product offers.
A very common one that we see is what we call a pre-existing injury exclusion, or a 'PEC' as it's known in the industry. Essentially, let's say I had a pre-existing knee injury. It might be that an insurance policy I have does not cover that pre-existing injury. Is that something that I need to be aware of with an insurance policy? Waiting periods can vary. That could be very important. What is the waiting period? What's the shortest? A, is there a waiting period? B, what is the shortest? What is the longest? That can have a big influence on that insurance, because it's when you need that payment.
Occupational restrictions are another one. They may not cover certain occupations. You might have a hazardous job. Again, if you're doing something risky, does that insurance policy cover what you do? Age restrictions. We know that most insurance policies will have an age expiry date. It's very important to check that too, when you're looking at insurance. How long do you want it to be able to cover you for? What age do you need it to? Residency is another one as well. So, obviously your resident status in Australia.
I do want to finish off on a very important one. As an ex-financial adviser, oftentimes a financial adviser can investigate superannuation and insurance funds for you. They can look and find the right policy for you. What we find sometimes is people might have multiple super accounts. They might have a great insurance policy in one of those that’s better suited for their situation, but they can't get that with any new insurance policy. There may be a reason that you’d want to keep an extra super account with insurance in that, for that very reason. The most common example would be if it doesn't have any pre-existing injury exclusions on it. So, it covers me. Whereas if I get a new policy, it won't cover that pre-existing injury. Just be aware that there are different things that insurance policies will have. You can do your own legwork, but as I said financial advisers will also investigate that, do the heavy lifting for you and match it to your situation. Look at your product disclosure statement. Have a look at what the policy is offering. What does it cover? What doesn't it cover? I've already recommended financial advice. I can't stress that enough. If it makes your head hurt, ‘Oh my gosh! There's so much out there. There's so much to take in’, the financial advisers can wade through that for you. They are experts at doing that.
We've talked about the different types of cover. We've talked about how you can customise it and things to be aware of. But the most important thing about an insurance policy is that you want it to pay when something happens to you. How do you make a claim on your policy?
April: What I would suggest is calling your super fund first. What forms do you need and what supporting documentation do you need? As you mentioned earlier, Kane, you needed to fix up your car. So, getting a repairer—you might be able to get that tomorrow, but unfortunately with claims when you do need supporting documents, particularly for medical reasons, you might need reports from specialists. As you might know, it might be months before you can see a specialist.
We do understand it is a very emotional time that you're going through. Lean on your case managers. You might need to get some details from your employer, the specialist, the medical doctor. When you do contact your case manager or your claims manager, they will let you know that there's going to be mandatory documentations that they need to start the process of the claim. Once you've got all those documentations through, that's when you can look at getting that claim processed as quickly as possible, because you've got that mandatory documentation, and you've got that support there from your case manager as well.
Kane: A great place to start is online. If you look online, there are a lot of insurance comparison tools there that you can have a look at. They'll compare all the different insurance funds and policies out there. Just always have a look if you can. There are some that might be paid. There are some that are independent. Always keep an eye on that. It’s a good idea to check a few of those just to see if there's a pattern or you're seeing the same kinds of policies rise to the top on these review sites. Super funds often have a lot of their own insurance calculators on there. You can put your own situation in. For me, when I claim on insurance, it might be that I want my mortgage paid out. I want my kids’ school fees covered—that kind of thing. These calculators help you work out how much insurance you need and what type. Then you can compare that to the type of cover you've got already. That's a really great place to start.
You can also have a look at whether flexible payment options are offered? Again, you harped on very strongly around leaning on the claims manager. It's a horrible time to go through an insurance claim. A claims manager can really help there. A big thing to look at is what claims assistance is available for you with different super funds or the different insurance policies you're looking at.
How easy is it for me to check my insurance? For me, for example, I can just use an app where I can log into my account online and I can see what cover I've got, what types, how much, how much it's costing me, and I can even adjust that online. Again, it might be a good thing to check how easy it is for me to check what cover I've already got. As I've harped on about previously though as well, financial advice. This is a particular area. It can be expensive and it's very important to you and your family. You want to make sure you get it right, and if it does make your head hurt, a financial adviser—the experts—can do all the legwork for you and find the right policy that suits your situation and your needs. That's all we have time for today. Thank you for listening to Super Insider, and we hope you can join us again next time.
This transcript has been edited for length and clarity.
