An analogy can be drawn between life insurance and superannuation and country and western. As observed in the film The Blues Brothers, often times what may be seen as two separate things is sometimes one thing.
In that case, consider the immortal quote in response to the question of what music was played in a particular establishment: “Oh, we got both kinds. We got country and western.”
In the case of life insurance and superannuation, these may look like two separate coins, but they are in reality one coin, albeit with two faces.
The reality is life insurance benefits in superannuation do not constitute life insurance as such from a legal perspective. These benefits are simply a type of benefit payable by the trustee on the occurrence of certain events, such as death and disability.
If these benefits truly were life insurance, then, of course, the trustee would be required to be licensed under the Life Insurance Act 1995.
True it is that, ordinarily, these benefits are financed or underwritten by life insurance taken out by the trustee. That arrangement, however, does not characterise the nature of the ‘life insurance’ benefits paid by the superannuation trustee.
From this reality a number of legal propositions follow. For a start, the member does not owe a statutory duty of disclosure towards that trustee under the Insurance Contracts Act. The trustee will generally owe such a duty to the life insurer but the members will not.
Nor will the members owe a duty of disclosure to the relevant life company as the members are not in any contractual relationship to the life company. Because the trustee owes such duty, the trustee will typically require the insured members to make health disclosure as a condition of membership of the fund.
Secondly, the relationship between the trustee and the relevant insured members is not a contract of insurances, again because the benefits derive from membership of the superannuation trust.
This is not to say the life company does not owe duties to superannuation members or that such members do not have any rights against the life company.
Various case-law decisions have made it clear a life company can owe a direct duty to an insured superannuation member in certain circumstances, notably where the member’s superannuation entitlement involves effectively the determination of the member’s entitlement by the life company.
While the above is the legal position, it has to be stated that, in the vernacular and industry idiom, members are seen to take our life insurance through superannuation and they are seen as purchasing life insurance.
While technically the trustee could pay the insured benefits from any assets of the fund, the reality, of course, is these insured benefits are intimately linked to the underlying life policies taken out by the trustee.
In particular, the trustee is not going to be keen, let alone able, to pay out insured benefits unless it can successfully claim the benefit under the relevant life policy.
This presupposes and necessitates that there is a symbolic link between the insured benefits payable by the trustee, the life insurance it has effected to fund those benefits and an alignment between the circumstances and quantum of the trustee’s payment obligations with those of the life insurer.
For example, the definitions of the entitling event, such as disablement, should align as between the trust deed and the policy.
Moreover, the trustee’s liability to pay insured benefits should be specifically referrable and limited to the amount payable by the life company.
While life insurance and superannuation are regular bedfellows, their relationship needs to be understood as, legally at least, there is more there than meets the eye.
