Junk Insurance: Financial Services Council acknowledges inappropriate insurance

The Financial Services Council has announced that, for a limited time, member insurers will assess TPD claims based on a person’s working arrangements as at 11 March 2020 rather than when they became ill or injured. In doing so, it has acknowledged that total and permanent disability insurance (TPD) cover is inappropriate for unemployed people and people working limited hours. The announcement comes after ASIC released research late in 2019 which found claims assessed under these restrictive tests were five times less likely to succeed. 

“Restrictive tests have no place in TPD insurance, whether during a pandemic or not. Super Consumers Australia is calling on funds and insurers to ban these junk terms once and for all.” says Super Consumers Australia Director Xavier O’Halloran. 

“It is good to see the FSC acknowledge there is a major problem with restrictive terms in people’s life insurance in superannuation. But, what the industry has proposed is a band aid solution to a problem it knew about long before the global pandemic.” 

The scheme is set to expire on September 27th, 2020, after that date people who have become unemployed for a period of time, or had hours reduced and become ill or injured will be assessed under the much harsher test.

“The September deadline will see people falling off a financial cliff. The forecasts are not showing a full recovery in unemployment levels for years, not months. The industry’s plan will see some people caught out.”

The FSC said it aligned the scheme with the expiry of the Jobkeeper payments.

“Everyone has been doing their part to lessen the impact of this pandemic. By aligning this scheme with the end of Jobkeeper, the insurance industry is piggy backing off the Government’s program to avoid claims payouts and then pulling the rug once the support is gone.”