Under the current superannuation arrangements, fund members receive life and total permanent disability (TPD) insurance through a group insurance arrangement at the cost to investors, however this system has become a contentious point in recent months, and is currently part of a review into the super system being conducted by the Productivity Commission (PC).
In a recent submission to the PC’s review of superannuation efficiency, insurance company ClearView argued that group insurance doesn’t provide adequate coverage for the average Australian, and in some cases may reduce the likelihood of those same Aussies seeking advice and getting the cover they need.
“The very provision of the default cover seems to give many members a false sense of security, and/or the fact they have cover dissuades them from properly and carefully considering what their cover needs might actually be,” the submission said.
The submission said that the “one-size-fits-all” approach employed by group insurance arrangements meant most people would only receive 20 to 30 per cent of the cover they would need if something happened to them.
ClearView said that instead of the current ‘opt-out’ model (which requires fund members to actively remove themselves from the default insurance option), super funds should move to an ‘opt-in’ model.
“ClearView believes that a system which requires members to consciously opt-in for group insurance in super will result in a substantial improvement in understanding what they are, and aren't, covered for and how much cover they have,” the company’s submission said.
“This will significantly reduce the number of workers who think they, and their loved ones, are adequately protected when they're not. Importantly it will lead to more workers seeking advice, either via their super fund or a third party, about the type, and level, of cover they need.”