Attwood Marshall Lawyers Compensation Law Senior Paralegal, Amy Lewis, explains the horror stories she has seen when her clients need help to access their superannuation insurance policies after suffering a significant injury or illness preventing them from working, only to discover they are not covered or the cover they have is not enough. If you get your life insurance or TPD application wrong when you commence employment, you may not be protected against the unexpected.
Introduction – What is TPD and Life Insurance? How does it work?
In February 2019, new superannuation laws were passed by the Government which affected the retirement savings of millions of Australians, as well as the insurance they held within their superannuation fund.
Prior to these changes, in the majority of instances, a default level of death benefits (or life insurance) and TPD cover was automatically provided to members when they joined a superannuation fund, with members given the option to ‘opt-out’ of this insurance at any time.
As a result of the new legislation, from 2019 onwards, trustees are now required to offer insurance on an ‘opt-in’ basis only to members whose accounts have not received a contribution for 16 months or longer. Trustees are also required to offer insurance on an ‘opt-in’ basis only to new members who are under 25 years old, or that have a balance below $6,000.
Generally, for all other superannuation members, The Superannuation Guarantee (Administration) Regulations 2018 requires super funds to provide MySuper members with TPD and life insurance cover on an opt-out basis, if they meet the age and account balance requirements under legislation.
What this means is that you may not be automatically covered, and you may need to elect to receive this cover to protect yourself against the unexpected when you join a super fund.
When you are employed
If you are employed, your employer is required to pay 9% of your gross pay into your Superannuation Fund. Superannuation trustees are required to provide MySuper members with TPD and life insurance cover, which is usually a lump sum amount which is payable upon death or total and permanent disablement (TPD). Some policies do pay annual TPD instalments on the basis you continue to be deemed as totally and permanently disabled.
To qualify for a TPD payment you usually need to have suffered an injury or illness that leaves you with a permanent disability that prevents you from returning to your usual occupation.
This cover differs from fund to fund and the amounts you are insured for change as you get older. You have the option to increase your cover for both death and TPD, but this usually means you pay higher premiums that come out of your super balance.
When you start work with an employer you usually have to fill out paperwork to sort out your cover with your Super and particularly if you change over to the superannuation fund that your employer uses. It is very important that you get help with the cover you are selecting and make sure you properly complete the application forms. Most companies have someone in Human Resources or payroll that can help you with this, but we recommend you get advice from an experienced financial planner or insurance broker in this area. If you have an accountant, they can usually provide this advice in house or recommend someone who can help you.
When you work for yourself or have your own business
If you work as an independent contractor or have your own business, you must take out your own cover with an insurance company or industry provider. For example, many tradies take out cover with C-Bus in Queensland. You may also have a self-managed super fund (SMSF), which will usually take out policies to protect you, but the benefits get paid to the SMSF.
People can purchase and apply for life insurance and TPD cover without getting advice, however when you seek advice from a trusted adviser such as an experienced broker or financial planner, they will take into consideration your unique circumstances including the type of work you do, what type of cover you need, and how much cover is appropriate to protect your family and personal financial position.
Recently, we have seen a growing number of clients who have been impacted by the consequences of not seeking proper financial advice when setting up their life insurance and TPD policies. Unfortunately, they only discover the issue once it is too late!
There are a multitude of products out in the market – we get bombarded with insurance offers from our health funds, insurance companies, supermarkets, and credit providers. Don’t be deceived by these providers and take out cover that is not tailored to suit your needs. It is very important that you seek advice from an experienced and trusted insurance broker or financial planner in this area. It could save you much grief in the event something catastrophic happens to you!
Here are some examples of what can go wrong if you do not get the right advice and assume you are covered for TPD and life insurance.
Case Study 1: The consequences of not answering questions correctly
Matthew, a young, fit, and healthy concreter was left severely incapacitated after he was the victim of an assault.
Initially, Attwood Marshall Lawyers were able to confirm that Matthew held TPD insurance through his superannuation fund to the value of $220,000. As Matthew fit the definition for total and permanent disablement, a TPD claim was lodged.
During the claim assessment, it was identified that on Matthew’s initial superannuation application form, when asked about the nature of the type of work he does, he had answered that he undertook non-manual work (essentially office work), as opposed to manual labour. Based on the information Matthew had provided to the insurer in his application, the insurer provided him with $220,000 worth of TPD cover and charged premiums accordingly.
The insurer took issue with Matthew’s incorrect disclosure about the work he was engaged in, and they argued that if Matthew had identified his occupation correctly, the insurer would have only provided Matthew cover to the value of $60,000.
Matthew was denied his $220,000 TPD pay out on this basis, however, was fortunately, able to claim the lower amount of $60,000.
By not disclosing correct information on this application form, Matthew was not covered appropriately, despite thinking he held a suitable policy and was paying premiums for this purpose.
Case Study 2: The consequences of misinterpreting the questions
James was involved in a major motor vehicle accident and was left unable to return to work.
Prior to James’ disablement, he had opened a new superannuation account and rolled over any other superannuation funds into the new account. James assumed he was automatically covered for TPD insurance under his new superannuation account.
After his motor vehicle accident, he contacted us to assist him in making a TPD claim.
When Attwood Marshall Lawyers contacted the superannuation fund to confirm the insurance policy, we were advised that James did not hold insurance as he had told the fund in his initial application that he had previously had a TPD claim (this was not the case, he had never made a TPD claim before).
This meant James was not eligible to hold TPD insurance with the superannuation fund.
The question which James had answered incorrectly was confusing and if not read in complete context, could be easily misinterpreted.
The question read:
Are you applying for, entitled to or been paid a total and permanent disablement (TPD) or terminal illness benefit?
James answered yes despite at the time being a healthy and working individual.
James had thought he was answering yes to “Are you applying for TPD insurance” whereas the question was asking whether James was currently making, or had previously made a TPD claim.
This small mistake meant James had no insurance and he was completely unaware of this fact. Unfortunately, we were unable to assist him because he did not hold any TPD insurance policies.
Case Study 3: The consequences of not meeting minimum account balance requirements
A young builder, Thomas, was injured on a worksite and left unable to return to employment.
A few months before his injury, Thomas rolled multiple superannuation funds into one master account. He assumed he was automatically covered for TPD insurance.
When we contacted his superannuation fund, we were advised that Thomas did not hold insurance. As Thomas did not have the minimum balance required to kick-start insurance, he was uninsured at the time of his injury. Thomas was unaware of the minimum balance requirement.
To retain life insurance cover at many retail and industry funds, the funds usually require that the member maintains a minimum balance in their account of $6,000. This minimum requirement comes under the Protecting Your Super legislation, which was established in March, 2019. Although this legislation was designed to protect superannuation accounts and prevent them from eroding over time by fees, many people fail to understand that these automatic protections may take away critical cover and insurance policies. You should never assume you are covered.
Sadly, this meant Thomas was unable to make a superannuation claim to assist him financially after being unable to return to work. If Thomas had sought trusted financial advice at the time he rolled over his superannuation balances into the new master account, he would have likely been made aware that the insurance policies did not apply to him and that it would be recommended that he set up insurance through an alternative provider to cover himself in the event he is injured or becomes ill and cannot return to work at any time.
The above three cases show the serious consequences that can arise if you are underinsured or simply not covered at all. These situations can be avoided if you seek proper financial advice prior to setting up your insurance policies and superannuation funds.
At Attwood Marshall Lawyers, we hear many clients say they simply cannot afford financial advice, but the real question is, can you afford to be underinsured?
We all hope we never have to make a claim on our TPD insurance, but in the same way we take out private health insurance to cover our health-related needs, or car insurance in the event we are involved in a car accident, TPD insurance is integral if the unexpected does happen and you are unable to return to work and can no longer rely on your current income. Your life and livelihood depend on your income, and it is imperative that you insure yourself in case you no longer can work at the same capacity.
Attwood Marshall Lawyers – experts in TPD and superannuation claims
If you believe you are eligible to make a TPD claim and require assistance, we are here to help. It is our firm’s intent to help people and change their lives for the better. In some cases, people hold multiple TPD insurance policies across various superannuation funds and may be entitled to make multiple claims.
If you can no longer work because of injury, illness, or a medical condition, we can help you investigate any insurance cover you may have available to you to help you get things back on track and achieve financial security.
For a free, no-obligation initial consultation, contact Compensation Law Department Manager, Kelli Costin on 07 5506 8220, email [email protected] or free call 1800 621 071 at any time.