Commissioned by The Australian for an advertising report that was spiked.
Insurance and superannuation are two of those necessities that most of us choose to ignore. We are baffled by the concepts let alone the detail in the small print. In short, these products are not friendly to the average consumer.
Yet it is the average consumer that needs to know most about both of these topics.
Since the introduction of super choice on July 1 this year it has become mandatory for group company superannuation schemes to offer insurance.
This means that about 5 million Australians now have insurance as part of their super, according to Greg Einfeld, head of protection solutions at financial services group MLC.
Jodi Murray, manager sales and marketing for insurance at company Tower Australia, says that most people don’t realize that that they now have this cover. She says: “Due to a lack of understanding and ignorance on behalf of a lot of members superannuation funds they don’t understand what insurance benefits they actually have.”
She says employers need to do more to educate the members of their super funds about exactly what their entitlements are.
She says: “Employers are looking for ways to keep members within their superannuation funds. This is a really good opportunity for employers to be advertising the benefits within their superannuation plan. Not just investment returns but the types of insurance and what their members are actually protected against.”
With the arrival of choice, most super funds are dangling attractive carrots in the form of benefits to make people swap. MLC’s Einfeld says that insurance is one way that the funds are trying to differentiate themselves and stand out in the marketplace. He says: “We are seeing all superannuation funds, including industry funds, looking to provide more generous benefits now than what they might have been providing a year ago.”
Colin Lewis head of technical services at AXA owned financial planner IPAC says that people should be careful that they don’t swap from perfectly adequate company schemes to alternatives offering inferior levels of insurance cover.
The insurance industry is full of frightening statistics about how people are at risk should the breadwinner be injured, fall ill or die.
Lewis says that most people don’t bother to work out what would happen if something happened financially of the breadwinner was laid low.
According to research for the The Investment and Financial Services Association (IFSA) by actuaries Rice Walker 60 per cent of families are covered for less than one year by insurance. There are over 4,000 people with children under 21 who die each year, most of whom are underinsured.
Most families don’t have enough savings to last one month without pay let alone the 90-day waiting period that most policies require, according to Tower.
Einfeld says that as a rule of thumb people should look for death and permanent disability cover of ten times salary and income protection insurance of 75 per cent of salary.
He says: “People are lulled into a false sense of security where they think they‘ve got some cover through their superannuation fund but the amount of cover they have leaves them well short of where they need to be.”
The ATO offers a tax deduction on insurance that is part of superannuation, as long as it does not cover more than two years salary. This makes it attractive to hold insurance as part of a super plan.
The difficulty is assessing what is on offer in terms of both super benefits and insurance. Murray says: “You need to read the fine print around what are the options when you leave a fund.”
The problem for the average person is that there are so many details to consider including a person’s individual financial position. Usually, a fully informed decision requires the help of a financial adviser.
Murray says most companies are looking to simplify the fine print on their products. “We always look at bringing out simpler products and simpler wording and I just don’t think anybody’s got it right yet. I think there’s always a quest for all insurance companies to make it as customer friendly as possible but obviously got a long way to go.
“We talk about under insurance being a huge issue. I think one of the reasons is just lack of clarity and understanding from a consumer perspective. We need to work a lot harder.”