Stop ‘zom­bie’ in­sur­ance chew­ing up your su­per

The Daily Telegraph (Sydney) - - David & Libby - MEREDITH BOOTH

THEY lurk in the shad­ows of su­per ac­counts and are dead to any­one who tries to claim them, but “zom­bie” in­sur­ance poli­cies can be killed off eas­ily.

Al­most half of Aus­tralian work­ers over­pay $1.9 bil­lion in pre­mi­ums each year through du­pli­cate su­per­an­nu­a­tion ac­counts. So con­sol­i­dat­ing su­per and in­sur­ance through the web­site is wise, says Affin­ity Pri­vate Ad­vi­sors founder Cather­ine Rob­son.

Any­one who has a tax file num­ber lodged through the Aus­tralian Tax­a­tion Of­fice on the MyGov web­site will be able to con­sol­i­date du­pli­cate su­per with a trans­fer but­ton. “This gen­er­ally comes with a warn­ing for you to un­der­stand how this af­fects your in­sur­ance,” Mrs Rob­son said. “Once you’ve trans­ferred out of a fund, in­sur­ance will lapse.’’

She said in­come pro­tec­tion claims could never ex­ceed 75 per cent of your cur­rent in­come, so make sure your cover does not ex­ceed your cur­rent earn­ings. Du­pli­cate in­sur­ance poli­cies will be off­set against each other by in­sur­ers to en­sure that they do not col­lec­tively ex­ceed 75 per cent.

Tem­po­rar­ily stop­ping work, such as tak­ing parental leave, also can af­fect in­sur­ance cover, with many poli­cies re­quir­ing paid em­ploy­ment at the time of ill­ness or in­jury as a pre­con­di­tion of any claim.

Mrs Rob­son said it might be wise to re­tain cov­er­age while not work­ing to pre­vent the need to reap­ply and avoid the risk that cover was de­nied as a re­sult of changed health.

En­dorsed cover, where peo­ple pro­vide med­i­cal and other in­for­ma­tion up­front so there is no fi­nan­cial as­sess­ment at the time of claim, may be a bet­ter op­tion than in­dem­nity in­sur­ance, which is com­mon to many de­fault su­per ac­counts.

Mrs Rob­son said in­dem­nity pre­mi­ums could be cheaper, with fewer hur­dles, but came with the need to prove your in­come at the point of claim, which could be dif­fi­cult and dis­tress­ing when ill or in­jured.

De­spite hor­ror sto­ries emerg­ing from the Hayne royal com­mis­sion, in­sur­ance is vi­tal for peo­ple with no other in­come streams, such as prop­erty or a share port­fo­lio.

“In­sur­ance of­ten is an in­ex­pen­sive way to make sure that there’s some re­place­ment in­come if you can’t work,’’ Mrs Rob­son said.

Mercer head of cor­po­rate su­per­an­nu­a­tion Dar­ren Stevens said in­sur­ers and su­per funds were now ne­go­ti­at­ing new pre­mi­ums and prod­ucts as a re­sult of re­cent changes.

The good news from all the reg­u­la­tory scru­tiny was that in­sur­ers and su­per­an­nu­a­tion trustees would likely re­move in­ap­pro­pri­ate and un­nec­es­sary in­sur­ance for un­der 25s, who rarely claimed on such poli­cies. How­ever, this could lead to un­der-in­sured trade­based work­ers.

“Trustees will be work­ing with in­sur­ers to pro­vide bet­ter out­comes for mem­bers, al­though this may see a fall in in­sur­ance cover for some mem­bers, such as younger work­ers with more haz­ardous jobs that opt out of life in­sur­ance,’’ Mr Stevens said.

NO-BRAINER: Con­sol­i­date du­pli­cate or “zom­bie” in­sur­ance poli­cies through the web­site.

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