The viability of lump sum TPD payments from group life insurance is under review with questions raised around the adequacy of the payments and their usefulness to claimants, consultancy group Rice Warner has claimed.
The group stated that while lump sum TPD payments provided better taxation treatment than monthly payments the adequacy of a lump sum in replacing income for a claimant who could no longer work was in question alongside the issue of whether customised advice was required to help claimants deal with the lump sum.
“…the adequacy of a lump sum in replacing income for a claimant who could no longer work was in question…”
Rice Warner stated the shift to paying TPD instalments, which had only been taken up by a small number of superannuation funds, was one of the responses to the ongoing disruption of the group life market since 2013, which had also begun to tighten TPD definitions and make greater use of rehabilitation and retraining.
According to Rice Warner the move to paying TPD claims in instalments was significant and “…involves a new assessment of the TPD status of the claimant, and in some cases their compliance with medical, retraining and rehabilitation requirements, before each claim instalment is paid”.
“It is expected that the payment of TPD by instalments will expand and in time will lead a combination of TPD and disability income provisions in some funds.”
“The actual insurance provisions and processes will be more tailored to the circumstances of particular membership groups within funds,” Rice Warner stated.
RW are just flying a kite-pensions need actuaries. Most problems in the TPD group market have one source-the distortions created when super Trustees insist on offering non-underwritten DEFAULT COVER to un-insurables !
Why would you put TPD into superannuation anyway. Lump Sums or installments (other than an income stream conversion).
Apart from meeting an insurers definition of Total and Permanent Disablement under a Condition of Release, the taxable component if the claimant in under preservation age (55) is subject to 22.0% tax Including the medicare levy) on the lump sum.
So, $2m of TPD cover costing say $2000 p.a receives a $600 (30.0%) tax deduction but has a potential tax liability of $440,000 on the lump sum if a claimant is under 55.
Sounds like a real deal.
The odds of converting the taxed element to an income stream just to get the 15.0% rebate on the income stream is unlikely if the purpose of the TPD was to repay substantial debt and modify premises,…… just in case.
Comments are closed.