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Super stapling undermining insurance cover

Mike Taylor20 July 2022
Relaxed man unaware of danger

The Federal Government needs to review super fund stapling within the Your Future, Your Super regime in the context of insurance inside superannuation, according to major life insurer, MLC Life.

The life insurer is urging the Government to look at the impact of stapling on vulnerable people, especially women, in the context of Treasury’s broader review of the YFYS laws.

In doing so, the insurer has cited research showing that a large proportion of superannuation fund members are simply not sufficiently aware of stapling and therefore its implications for their insurance coverage.

“While positive in its intent to reduce the number of Australians with multiple superannuation accounts, in practice the reform means that members are required to be aware of the rules and take greater responsibility for decision making and therefore the consequences of their decisions will be much greater,” the company said in a statement.

It said that its research had shown that 60% of superannuation fund members had never heard of stapling, potentially leaving them with inadequate or no life insurance protection when they change jobs.

“The impact of stapling will disproportionately impact vulnerable people, mostly women, who will have their life insurance cover ‘switched off’ if they are out of the workforce for more than 16 months (resulting from Protecting Your Super reforms),” MLC Life said.

“When they try to re-join the workforce, because of stapling, they must make proactive steps to obtain cover again and, in some cases, they will not have access to the cover they once had. Many are unaware of the issue and vulnerable people are far less likely to have access to financial advice.”

According to MLC Life, their research shows that women are less engaged than men with their insurance with 37% of women saying they are engaged with their insurance compared to 46% of men.

MLC Life group chief insurance officer, Mark Puli said while the overall system of group insurance is delivering for Australians, reforms such as stapling need greater consideration for vulnerable people.

“The review of Your Future, Your Super is a positive development on many fronts, but the terms of the review must include insurance coverage. More than 70% of Australians hold life insurance inside superannuation. In 2021 alone, 45,000 claims worth $3.7 billion were admitted for life and TPD, providing cover for members or their beneficiaries when they needed it. The overwhelming majority of Australians value this cover.

However, as we move to a member-led, rather than employer-led system, the most vulnerable Australians will slip through the cracks. Our research shows that engagement remains an issue, and only 42% of members have ever reviewed their insurance.”

Mike Taylor

Mike Taylor

Managing Editor/Publisher, Financial Newswire

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Old Risky
1 year ago

Ah well, as they say, always look to self-interest – it’s the only horse in the race that is trying. MLC have skin in this game and also a pretty poor record. They were the insurer behind a worker who elected, as a result of extra money being dangled in his face, to change from full-time permanent to casual. Only trouble is, the moment he did that, his TPD definition changed to 3 x ADLs.

MLC is are talking about communication to members. Ho bloody ho! The standard of communication from super funds and their insurers to the members of those funds about their insurance is non-existent. I have never found a member of an NFP fund that understood that the default life and TPD cover slowly went downhill to 0 at 65, this after around age 37. The superfunds also have nothing in any of their online publications to inform their members about lump-sum tax on TPD insurance benefits paid from the super fund.

If those noisy, politically active NFP funds actually had their members interest at heart they would run a campaign to inform members about the problems if they change jobs. Firstly, if they change employer and change their new super fund they really will have no insurance cover for the first six months due to the anti-selection devices put into default cover by insurers like MLC. And then, if the insurer has what MLC had a few years ago in terms of change of definition upon change of employment status, then there must be instant communication to the member within any “wind off or lapse period that occurs when an employee changes employed status and put himself in jeopardy by becoming a casual.

Better still, the insurers and the trustees in the circumstances should have an automatic system to inform the member that he should urgently seek qualified financial advice from an insurance specialist.

Bah humbug as usual

Anon
1 year ago
Reply to  Old Risky

These are just a few of the problems with default insurance in super. The biggest problem of all is that insurance in super is very poorly aligned to members’ actual needs. Some have too little, some have too much. Most have TPD when they actually need IP. Consumers would be far better off if there was no default insurance in super to give them a false sense of security, and they had greater incentive to purchase good quality insurance aligned to their actual needs.

Unknown Entity
1 year ago
Reply to  Old Risky

I question the assertion that funds don’t mention TPD payments are taxed, and most PDS guides clearly show that the amount of insurance reduces over time.

I put forward that most of the problems and complaints that arise are from people who do not bother to read the information provided to them and wonder why things are the way they are when they need to make a claim.

Educate yourself BEFORE the problem arises, don’t whine when s#!t hits the fan and you realize you don’t have what you need.