Nearly all members of superannuation funds take up options that include insurance, but research from Super Consumers Australia (SCA)has found that some funds and insurers are underperforming in their service to policy holders.

“We took a good look at the stats and found some disturbingly large-scale problems for people making claims on insurance in their super,” Susan Quinn, of SCA, said.

If you’re a super fund member and you ticked the insurance box when you joined you’ll likely have some life insurance and total and permanent disability (TPD) cover. That can be a weight off your mind but SCA found that accessing it when you need it can be a problem. SCA stated:

• More than one-in-five claims for income protection and total and permanent disability insurance take longer than the insurers’ commitment under their own industry code
• Some insurers are lagging well behind the pack when it comes to claims times and disputes – with AIA and Resolution Life being among the worst
• There is scant public information on which of the super funds are serving their members best or worse when it comes to insurance.

Claim times

The timely settlement of claims is a problem. Since October 2021, super funds have been required to settle internal disputes about life insurance claims in 45 days.

Overall the Life Insurance Code allows two months for settlement of an income protection claim and six months for a TPD or death claim.

However, those requirements are not always met. Over the past three years SCA found that settlement took:

• 3.1 months for TPD claims
• 2.8 months for death insurance claims

• 1.8 months for income protection claims.

That puts most claim settlements within the timeframes demanded by the code.

In a minority of cases settlement was outside the code limitations with about 22 per cent of income protection and TPD cases falling outside those limitations.

Given these issues it is time to review your insurance to ensure you get the best out of your cover.

Thinking about insurance

First, be clear about what insurance you have, and where and why you have it. Taborjan Rasiah of Rasiah Private says, “think about how much you actually need”.

Having appropriate levels of insurance depends on a number of things – what you can afford, your age and family status, your asset base and type of job.

Check with your super fund what your possibilities are and how much they cost (often you can do it online).

Then think of where you want to hold your super. “Ownership of the policy changes things like accessibility, tax deductability and allocation of payouts,” Rasiah said.

If you have your life and TPD  insurance inside super then premium payments are tax deductible.

If you choose to have income protection insurance that is generally tax deductible in your own name rather than in your super fund, although that is not always the case.

Another possibility you could think about is trauma or critical illness insurance. That isn’t tax deductible but it can be important if you are one of the 33 per cent of people who has a heart attack or stroke at some point in life.

There is a conundrum with trauma insurance. “The time you’re most likely to claim on it is somewhere between 50 and 55 but that is the time most people cancel their policies because it costs more as you age,” Rasiah said.

Getting a payout

As SCA’s research showed, the difficult part of insurance is when you go to make a claim. Life insurance claims are simple because heirs only need a death certificate to seek a payout.

Claiming incapacity is more difficult because each insurer will have their own definition that they will use to determine whether a payout is due. “Even with heart attacks every insurer will have a different definition of severity that can trigger a payout and it’s the same with cancer,” Rasiah said.

When making a claim it is very important to be well armed with everything you need before you approach your super fund or insurer.

“You need documentation like certification from your doctor, details of your income from your job and the accident or illness,” Mark Kachor, principal of insurance researcher DEXX&R, said.

But even that will not be enough. “The insurer is likely to say OK now we want you to go and see our expert physician,” Kachor said.

Even then the story is not over. “The insurer will have to make a considered opinion because a lot of these cases are in a grey area – they’re not black and white,” he said.

You might finish up with no payout or less than you think you deserve. You can then appeal the decision, but that will be an extended process with personal and financial costs more difficult to bear following illness or incapacity.

What to do

SCA made a number of recommendations to make the claims process quicker and better for policy holders.

These included mandating customer service and insurance claim timeframes for super funds. It also called for ASIC to keep a tighter regulatory rein on super fund insurance claims, and for the funds themselves to work with insurers to ensure claims are paid out within regulated time frames.

The New Daily is owned by Industry Super Holdings