Retirement
Are you paying for junk insurance?
Australians who are unemployed or working reduced hours due to COVID-19 could pay full price for cover that they are five times less likely to be successfully able to claim upon, new research has revealed.
Are you paying for junk insurance?
Australians who are unemployed or working reduced hours due to COVID-19 could pay full price for cover that they are five times less likely to be successfully able to claim upon, new research has revealed.
According to Super Consumers, the Financial Services Council promised to temporarily waive discriminatory terms in default disability (TPD) insurance policies sold through superannuation, which will end in September as JobKeeper is fazed out.
The advocacy group said insurers are intending to reintroduce discriminatory terms that target the unemployed and underemployed when the federal government’s JobKeeper payment scheme ends, which is slated for September.
This would put approximately 343,000 people at financial risk if it doesn’t take action by the end of September.
“The insurance industry has created a perfect storm, with many people facing job uncertainty potentially paying for junk insurance. The practical impact is that people covered by these policies will face a test with a 60 per cent fail rate. The tests target anyone who is unemployed or working limited hours after September,” said Super Consumers Australia director Xavier O’Halloran.
“People will be falling off a financial cliff in September if discriminatory terms remain in place. We are calling on insurers to permanently waive these harmful terms once and for all.”
Typically, these policies cost the same regardless of the quality of cover, with Australian consumers who are unemployed or working less finding it five times harder to claim.
“Charging full price for junk cover is indefensible. It is time to make the insurance we pay for with our super savings good value by requiring all superannuation funds to issue default insurance with fair, universal terms that meet the needs of all Australians,” Mr O’Halloran said.
New research by Super Consumers confirms that almost all insurers apply a different definition of total and permanent disability to claims by people who are unemployed, work less than a specified number of hours per week or work in a dangerous occupation.
Corporate regulator ASIC has found that people hit with discriminatory terms are five times more likely to have their disability claim rejected.
“The unemployment rate is forecast to increase to at least 8 per cent and not return to pre-pandemic levels until mid-2022. Yet the insurance industry is going to start discriminating against people who are unemployed or working limited hours from September 2020,” Mr O’Halloran said.
“Discriminatory terms put people experiencing financial hardship due to the pandemic most at risk of paying for insurance they’ll never be able to claim on.”
Research by Super Consumers has found that 30 of the 32 insurance policies (94 per cent) from Australia’s biggest superannuation funds apply restrictive definitions on the basis of work status. Super Consumers found that:
- 94 per cent of insurance policies from major super funds make it difficult for people to claim on their insurance if they are unemployed;
- 47 per cent of insurance policies from major super funds make it difficult for people who work less than full-time hours to claim on their insurance;
- 16 per cent of insurance policies from major super funds make it difficult for people working jobs they classify as high risk to claim on their insurance. High-risk jobs can include long-haul truck drivers, airline crew, labourers and factory workers.
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