Income protection insurance offered within a group life scheme runs the risk of being a second-rate product due to inadequate lengths and levels of cover, according to research group Rice Warner.
In comments published on the group’s website, Rice Warner stated that while group insurance was supplying basic levels of life insurance for more than 13.5 million Australians, superannuation funds will continue to struggle to supply income protection insurance that met the needs of fund members.
Rice Warner stated that “the levels of cover are generally short-term (benefit periods of 2 years) and the sums insured don’t provide full replacement of income” and a critical test of whether a super fund’s insurance is efficient is whether the cover is “adequate” and provided at a “reasonable” cost.
The group said it was difficult to efficiently offer income protection within superannuation due to the high cost of providing adequate levels of cover without eroding the retirement benefits of member’s accounts.
At the same time, most group income protection insurance arrangements are limited to providing benefit pay-out for two years instead of through to retirement and will not begin paying benefits if members are temporarily off work due to unemployment or maternity leave.
“We believe funds can place more of an emphasis on educating and advising members…about how much income-protection cover is needed…”
Rice Warner stated this has the potential to result in members paying for cover without receiving a benefit, which would also apply to members who have income protection cover elsewhere and/or receive Worker’s Compensation which already pays the usual limit of income-protection benefits of up to 75% of their salary.
The advisory group stated superannuation funds have no way of assessing the personal circumstances of a fund member to determine required levels of income protection cover and recommended fund members be provided with advice around income protection needs.
“We believe funds can place more of an emphasis on educating and advising members, including through fund advisory groups, about how much income-protection cover is needed for their circumstances,” Rice Warner stated.
“By encouraging members to obtain advice about their income-protection needs is likely to have the additional benefit of more members seeking holistic advice regarding their overall circumstances,” the group added.
“Such advice would hopefully extend far beyond insurance issues to setting long-term goals, saving for retirement, setting asset allocation and diversification for portfolios, retirement-income planning and estate planning.”
You can take a horse to water but you can’t make it drink, we need to position insurance as an investment not a cost as the premium is always paid it depends by whom.
An example, 55 woman with $100,000 trauma pays $1,500 pa makes a claim for breast cancer, one breast removed gets a payout $105,000 within 3 weeks, you tell me what other investment would perform as well.
I strongly agree although what happens if that same woman had been paying those premiums since she was in her 20’s and combined with IP or any other product the ROI drastically changes then!
If she had IP there would be a claim and even if she had it from 20 and had level premium would still be in front as CPI increases would have made it a great investment.
Need to run an example.
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