I'm A Little Concerned About Default Insurance Within Super!

I have discussed automatic default insurance within super in previous articles on several occasions. The reason being that in many cases, this tends to be the only insurance cover held by the average Australian.

Knowing that you have some default insurance in place however can lead to a false sense of security. Why? This is because most people seem to assume that the type of insurance held is appropriate.

This is my first concern! In most scenarios when default cover is issued, it tends to only be life and Total & Permanent Disability (TPD) insurance. Now both of these cover types are important, although the criteria for qualifying for benefit payments are quite extreme, ie death or permanent disability.

This means that you are not covered against temporary illness or injury, which statistically speaking is more likely to occur! Some people may be lucky enough to also hold some form of salary continuance cover in super as well, although you need to carefully look into the policy details.

Many super funds would issue salary continuance cover with extended waiting periods, such as 90 days and minimal benefit periods such as one or two years. This is better than nothing however limits your opportunity to claim benefit payments at your time of need, due to the narrow parameters.

Serious illness's such as cancer and heart disease aren’t covered within automatic default insurance either, unless you meet the criteria for an income protection benefit, which once again is very slim! Superannuation legislation doesn’t allow for trauma or critical illness cover to be owned within the fund.

My second concern relates to the sums insured or cover levels issued on commencement. You unfortunately have no say with default cover as levels are determined based on your age at application. In most scenarios, the cover levels reduce as you become older and are lower for riskier age groups, ie males aged between 20 - 25.

You do have the option to contact your super fund and actively adjust your levels or ask for advice, however I must admit I have probably spotted more unicorns on the street than come across this scenario before!

My last concern relates to the changed demographics within our society. Particularly our high divorce rates and the fact that couples are now marrying and starting families later in life. Why is this a concern?

This ties back to the fact that default cover levels reduce as one becomes older. With both scenarios above, higher debt levels seem to be held, as mortgages are taken out later in life or financial issues caused by couples who have separated, so need to start again financially.

Many people tend to be ineligible for new insurance cover or to increase existing insurance cover when they are older, mainly due to medical reasons. This means that they are at the mercy of inferior default insurance within their super fund that is diminishing each year.

I know I sound like a broken record, however the sooner you see an adviser and arrange appropriate cover the better! Do yourself a favour and locate your super member statements now to get the ball rolling.