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Insurance forecast
For the most part, in-super life cover is barely enough. And that is not just me talking my book from the retail life angle.
In the past, most trustees have set their in-super life cover at or near the minimum $1 a week level set almost 15 years ago and barely changed today.
That means the level of in-super life hasn’t gone up a great deal — and this is at the same time the average mortgage has blown out to greater than $200,000 and personal debt levels are said to be at an all-time high.
Many trustees are recognising that perhaps it is time to go over, and above, the minimum level, and this must be welcomed. Increasing levels of in-super cover are being arranged through group-life schemes, and this is clearly a positive development.
Despite my retail life ‘hat’, I welcome any moves to have more people in Australia covered by life insurance. And in many respects, I see group cover and retail cover working hand-in-hand.
Tower has made a lot of noise, along with the Investment and FinancialServices Association, recently about the underinsurance gap that exists in Australia. In doing so, the industry has been criticised for just talking up the issue so that it can sell more.
Yes, we would like to sell more life insurance and we are looking at ways to do that by developing offerings that suit a broader section of the community. We also intend to make it easier to buy the appropriate level of coverage.
However, underinsurance, if left unattended, will mean one thing — the taxpayer will be called upon to pick up the bill.
Underinsurance is not simply about the gap between assets and liabilities should something go wrong. Underinsurance is the difference between a family having a solid financial base in times of adversity as opposed to struggling.
Having the medical bills covered in times of a major illness is one thing, making sure the day-to-day living expenses is covered is another.
At the moment, in-super life offers only a limited amount of coverage. We would clearly like to see more, but there are restrictions on what in-super life can and cannot offer.
A prime example is income protection. Under the current rules, a super fund offering income protection in-super can only take advantage of a tax deduction when the benefit period does not exceed two years. Therefore, income protection past two years is generally not available in-super.
We, as an industry, would like to see this changed, but that will take time and needs the support of the industry so that a clear message can be sent to the Government.
Unfortunately, the two-year cover on income protection is probably not widely understood by people who have in-super life and may be relying on it. If they require income protection cover past two years, then they will need a retail product. This is an issue trustees and financial planners should consider when assessing an individual’s in-super cover. In fact, some advisers have a strategy where a client takes out income protection in-super with a benefit period of two years. This is then complemented with a retail life product that has a waiting period of two years, which would be deductible to the individual.
Critical illness cover is not available in-super. This product, developed in recent years in South Africa and now one of the global growth life insurance covers, provides a lump-sum payout on diagnosis of certain defined medical events.
Heart attack and cancer are the most widely covered medical conditions. A lump-sum payment at diagnosis can put an individual or a family in a much stronger financial position going forward, rather than relying on post-event life cover.
Again, an issue that needs to be considered by all.
One of the biggest advantages of in-super life is that there is likely to be no underwriting involved when the person initially joins. Group cover means that all are generally accepted equally regardless of age and prior health issues.
What has become clear since the introduction of super choice is that some people when moving from one fund to another lose automatic acceptance, especially where they are moving to a personal superannuation policy.
Although these products may offer insurance, the cover is not automatic, which results in clients not having cover. This is mainly because they are not aware of the need to apply for cover and many do not perceive personal insurance as a priority.
If a person does apply for insurance in the new personal super fund, they may find that it is a lot more expensive and harder to obtain because of their age and/or other factors.
Life insurance is all about tailoring the right solution for an individual’s needs and, of course, everyone’s requirements will change over time.
So, just like with a client’s investment strategy, it is important to get a good understanding of needs upfront and then to regularly review them over time.
In-super life coverage can fit the bill at some life stages, but there will be many times during a life when a more tailored retail approach is required, and it is heartening to see more planners and trustees recognising the issue, and helping to plug the underinsurance gap.
David Callander, chief executive officer, retail life, Tower Australia.
AUTHOR
Mike Taylor
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