They lurk in the shadows of super policies and are dead to anyone who tries to claim them, but “zombie” insurance policies can be killed off easily.
Almost half of Australians overpay $1.9 billion in premiums each year through duplicate superannuation accounts. So consolidating super and insurance through the my.gov.au website is a good start, says Affinity Private Wealth founder Catherine Robson.
Anyone who has a tax file number lodged via the Australian Taxation Office on the MyGov website will be able to consolidate duplicate super with a transfer button.
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“This generally comes with a warning for you to understand how this affects your insurance. Once you’ve transferred out of a fund, insurance will lapse,’’ Mrs Robson said.
She said income protection claims could never exceed 75 per cent of your current income, so make sure your cover did not exceed your current earnings. Duplicate insurance policies will be offset against each other by insurers to ensure that they do not collectively exceed 75 per cent.
Temporarily stopping work, such as taking parental leave, also can affect insurance cover with many policies requiring paid employment at the time of illness or injury as a precondition of claim.
Mrs Robson said it might be prudent to retain coverage while not working to prevent the need to reapply and avoid the risk that cover was denied as a result of changed health.
Endorsed cover, where people provide medical and other information upfront so there is no financial assessment at the time of claim, may be a better option than indemnity insurance which is common to many default super accounts.
Mrs Robson said indemnity premiums could be cheaper with fewer hurdles upfront, but came with the need to prove your income at the point of claim, which could be difficult and distressing when ill or injured.
Despite horror stories emerging from the Hayne royal commission, insurance is important for people without other income streams such as property or a share portfolio.
“Insurance often is an inexpensive way to make sure that there’s some replacement income if you can’t work,’’ Mrs Robson said
“All the other (financial) planning about building on assets is meaningless if the core assumption of our ability to earn is not protected.’’
Mercer head of corporate superannuation Darren Stevens said insurers and super funds were now negotiating new premiums and products in the wake of recent commissions.
Good news from regulatory scrutiny was that insurers and super trustees would likely remove inappropriate and unnecessary insurance for under 25s who rarely claimed on these policies.
But this could lead to under insured trade-based workers.
“Trustees will be working with insurers to provide better outcomes for members, although this may see a fall in insurance cover for some members, such as younger workers with more hazardous jobs that opt out of life insurance,’’ Mr Stevens said.