Superannuation funds face the risk of providing a second-class product in their efforts to offer income-protection insurance for as many members as possible.
Rice Warner* believes that critical tests of whether a fund’s insurance is efficient is whether the cover is “adequate” and provided at a “reasonable” cost. A number of funds may fall short of these tests in regards to their income-protection insurance.
The levels of cover are generally short-term (benefit periods of 2 years) and the sums insured don’t provide full replacement of income. Yet, without the cover offered through their super funds, many Australians would have no cover at all and they would suffer financially if they became disabled.
There are clear social and financial benefits from superannuation funds providing group life insurance to a large proportion of the community at a competitive price that generally cannot be matched by retail cover. Superannuation funds provide insurance cover for more than 13.5 million individuals– making a significant contribution to the reduction in our persistent underinsurance gap.
The median income-protection cover in Australia meets only 16% of income-protection needs – and 41% of needs for those with cover. Just 40% of working Australians have any income-protection insurance.
By contrast, the median level of life cover meets about 61% of the basic needs for average households (or 37% of the amount required for dependants to maintain living standards).
The approximate average income-protection needs for young families with parents aged 30 is approximately $5000 a month.
Unfortunately, the compelling case for superannuation funds to provide group life insurance is more challenging for group income-protection cover.
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