While self-managed superannuation funds continue to prove a popular alternative to corporate and employer funds, consumers who make the switch are leaving themselves exposed by failing to take out insurance, new research has highlighted.
The latest study from Plan For Life has for the first time revealed the extent of the underinsurance gap among SMSF members. Utilising data from the Australian Taxation Office and the Super System Report, Plan For Life has determined that only 12.7% of small superannuation funds have insurance cover. This leaves the vast bulk of members, an estimated 880,000, without cover.
Breaking this down further into age groups, Plan For Life estimates that the majority of SMSF members who do hold life insurance are aged over 55 (representing 58% of all members who hold insurance). Of the approximately 410,000 SMSF members aged between 25 -54, around 340,000 are believed to have no insurance.
Approximately 340,000 SMSF members aged between 25-54 have no insurance
Plan For Life said that, given that one would expect members of small superannuation funds to be more sophisticated and aware of the need for life cover, this disparity is most surprising.
In addition, Plan For Life observed that there are very few risk products which have been specially adapted for the SMSF Market.
The actuarial firm believes that to be effective and attract customers, targeted SMSF insurance products need to have several key attributes:
- Simplified underwriting and medical requirements; given that the majority of SMSF members will be employed, this has positive implications for the state of their health
- Competitive premium rates compared to retail risk insurance
- Competitive benefits
- Policies that are easy to administer by the SMSF
Given the previous growth of the sector (which experienced a 15.6% compound growth rate over the past 10 years), there is a clear opportunity for risk specialist advisers to engage with SMSF members.
