Clear fact-sheets and a ratings system are needed to make it easier for consumers to understand the costs and benefits of the death and disability insurance within their superannuation.
That’s what the Australian Lawyers’ Alliance (ALA) is arguing in its submission to the sixth round of the Hayne royal commission.
The ALA firmly believes that automatic death and TPD insurance cover in superannuation is an overwhelmingly successful means of mitigating Australian households’ serious underinsurance gap.
“It has been, and remains, an invaluable resource for disabled workers and their dependants who often have no other means of managing medical retirement besides resorting to Centrelink,” ALA spokesperson Josh Mennen said.
“However, more information needs to be provided to consumers so that they can understand and compare the differences in coverage available and the expected costs of this coverage – and avoid signing up for ‘junk’ insurance policies that are of little value,” he said.
“Too often consumers are not fully aware of the scope of their insurance coverage and do not realise that they are signed to a policy with sub-standard terms.”
The ALA has outlined this position in its submission responding to policy questions arising from Module 6 of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
The ALA believes a ratings system should be developed with tiered TPD definition classes to ensure that consumers can make like-for-like comparisons.
“For example, a policy with definitions that are consistent with the SIS superannuation early release provisions could be a Tier 1 policy and the use of ‘unable’ definitions is a Tier 2; a retraining clause is a Tier 3; pre-existing exclusion clause a Tier 4; an Activities of Daily Living (ADL) test Tier 5; and so on.
“A consumer can then clearly see where their TPD cover sits within that comparison.
“We also recommend that fact sheets provided by insurers should compare the cost of the premium with equivalent cover available in a benchmarked retail product for someone of the same demographic as the consumer,” Mr Mennen said.
He added that there has been plenty of evidence to show that inadequate insurance coverage can result in extreme financial hardship in the case of unexpected injury or illness.
“Clearer information in the form of a ratings system would make it possible for consumers to better choose insurance to meet their needs and avoid signing up for policies that are not best practice.”
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