Make income protection opt-in for super funds
Income protection insurance should be opt-in with respect to insurance inside superannuation, according to a panel of experts which analysed new research undertaken by MLC Life.
The panel said it regarded income protection insurance as being too expensive and therefore dangerous in terms of eroding account balances.
The research also suggested that superannuation fund members might still be caught out by the Government’s changes to insurance inside superannuation, with new research confirming that fewer than a quarter of members actually know what they are covered for.
The research, undertaken for MLC Life, found that just 25% of people knew what they were covered for via insurance inside superannuation, while only 21% knew how much they were paying premiums.
What is more, it showed that this knowledge gap was worse for young and lower income superannuation fund members.
According to the MLC Life analysis the research findings highlight a clear opportunity to close what is a “fundamental knowledge gap” by better educating people about their cover.
It said that while efforts should be made across the board, particular focus was needed to help improve the level of engagement among women, young members and those on lower incomes.
“This becomes particularly important as we move further into an environment where the onus to select appropriate levels of insurance sits increasingly with the member,” it said.
The panel of experts also recommended that Total and Permanent Disablement (TPD) cover be moved towards a universal and standardised definition to make it easier for members to navigate the complexity.
It also suggested that larger levels of cover should not sit within life insurance in superannuation.
There shouldn’t be any insurance in super any more. It is a relic of a bygone age. If people want insurance they should take responsibility for getting it themselves, outside super. Just as they do with myriad other personal expenses. Default super in insurance not only leads to erosion of retirement funds for those who don’t need it, it also leads to complacency and a false sense of security for those who need more than the default.
Super should only be used to fund retirement. Not lap banding surgery, not owner occupied real estate, and not insurance.
The heading says make IP opt-in but the first paragraph contradicts this and says it should not be opt-in, so which is it? Editor: You are right. It should be opt-in.
This article doesn’t mention employer paid insurance, why go external and give up free insurance? There’s also the possibility of getting subsidised cover by the employer. However as with most things in life its complicated due to the complexity of the member, the performance of the fund and who the employer and insurer is.
I would be much more interested to see the results if this analysis included more than 1 superannuation insurer. I don’t think 1 insurer is enough to conduct a worthwhile analysis as data is restricted to the members insured by MLC Life. If it wasn’t, there’s no mention of that in the article.
I’m also surprised that the number of members included in the analysis wasn’t forthright. It’s all well and good if 25% knew more over others, but that’s very subjective if the number of members analysed is only (say for example) 1,000. Whereas if it’s 100m that percentage would carry a lot more weight behind it.