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superconsumers.com.au > Media releases > 2021 > New year, old problems: Super funds revive junk insurance in 2021 

New year, old problems: Super funds revive junk insurance in 2021 

1 Jan 2021 2021

Super Consumers Australia is warning people that they may be paying for junk insurance with their superannuation. 

The Financial Services Council (FSC) will tomorrow end its temporary suspension of unfair terms in default disability insurance, once again leaving many Australians paying for junk insurance through their super.

“2020 was a financially devastating year for a lot of people. Now several insurers have made the worst kind of new year’s resolution: to bring back junk insurance in 2021,” says Xavier O’Halloran, Director of Super Consumers Australia.

“In 2020, Super Consumers Australia found that 94% of default total and permanent disability (TPD) insurance policies offered by Australia’s biggest superannuation funds contained discriminatory terms. These terms dramatically reduced the quality of cover for people working part-time or who are unemployed, while still charging them full price.”

“From January 2021, these insurers will be slapping members with exclusions that make it harder for them to claim if they are unemployed or work limited hours.”

The FSC announced temporary relief from the discriminatory terms in May 2020, in response to job losses during the COVID-19 pandemic. In doing so, the FSC acknowledged that TPD cover is inappropriate for unemployed people and people working limited hours. However the agreement expires on January 1, 2021. 

“Discrimination has no place in TPD insurance, during a global pandemic or at any time. With the Reserve Bank of Australia projecting unemployment will remain high well into 2021, many people will again be paying for insurance through their super that is essentially junk,” says O’Halloran.

Super Consumers has contacted the 20 funds with the most restrictive TPD policies, and asked if they would commit to ditching junk insurance permanently. 

Sunsuper, Colonial First State and Unisuper have all removed or are in the process of removing the restrictive terms in their TPD insurance.

LUCRF, VicSuper (now part of Aware Super) and Smart Monday by Aon have all committed to remove the terms.

“We applaud these funds for doing the right thing by their members. Now it’s time for the rest of the industry to follow their good example,” says O’Halloran.

The following funds will review their insurance but did not commit to removing the terms:

  • Australian Super, IOOF, CSC, QSuper, NGS Super, Suncorp and MTAA

“We’re calling on all remaining funds to remove these restrictive and unfair terms immediately,” says O’Halloran.

“It’s clearly not in the best interests of fund members to have their retirement savings eroded by insurance cover that won’t help them in their hour of need.”

Background 

Total and Permanent Disability (TPD) insurance provides financial support to those who

can never work again due to disability. While policies vary, most consider a person

eligible for a payout if they become disabled and are unlikely to return to work in any

occupation for which they are suitably qualified.

However under many default policies, people who don’t meet certain criteria (e.g. full time employment) must pass an Activities of Daily Living (ADL) or Activities of Daily Work (ADW) test. These restrictive tests require a person to show they cannot perform basic physical tasks such as bathing and feeding.

These physical tests of disability are extremely difficult to satisfy, particularly for people with mental health or cognitive conditions. In 2019, corporate regulator ASIC found that people subjected to restrictive tests were 5 times more likely to have their claim rejected.

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