Need to know
- Millions of Australians pay for disability and death insurance through their super
- This insurance may not provide good value for all older Australians. Some retired people are still automatically charged for it although they no longer need it and others who are still working can't get cover that suits their needs
- Super Consumers Australia says it's time to review this system and make sure it's working for everyone
Around eight million Australians have insurance through their super fund.
Most super funds automatically bundle two types of insurance when you open an account. Total and permanent disability (TPD) insurance pays you a benefit if you become seriously ill or injured and aren't likely to work again. You also get death cover, which pays your dependant (such as a spouse) a set amount of money, either in a lump sum or income stream, when you die or become terminally ill.
But you often pay more for less cover as you approach retirement age.
Analysis from Super Consumers Australia has found the cost and value of this insurance varies widely for older Australians, depending on which fund you're with.
"The amount of cover and value go down as people get older, and older Australians may be getting minimal or even no value from this insurance," says Super Consumer Australia advocacy manager Susan Quinn.
"Those who have retired or transitioned into part-time work, may be paying for cover they can't claim on.
"On top of that, how much you're paying for insurance, and what you're getting, can seem like a lottery."
When does this insurance cut out for older Australians?
ASIC's Moneysmart reports that TPD cover usually ends at 65 and death cover at 70.
Analysis by Super Consumers Australia has found that the cut-off age for cover varies between funds.
Josh Mennen, principal lawyer and national litigation leader at Maurice Blackburn and spokesperson for the Australian Lawyers Alliance, says people may be shocked to find they no longer have TPD cover because of their age and could still have this insurance if they were with another fund.
Australians are living and working longer: Is insurance keeping up?
Harold (not his real name) told CHOICE's retirement survey he had to leave the workforce early to care for his mother, who had Alzheimer's, and his father, who went blind. Feeling like he didn't have enough to retire, he then returned to work after his parents had passed away but found the insurance situation unsatisfactory; he couldn't find income protection, death or TPD insurance that went past age 65.
Recent research confirms that Harold is not alone; Australians are living and working longer, though not necessarily enjoying improved health. In the two decades before April 2021, the percentage of Australians aged 65 or over in the workforce more than doubled. A 2024 analysis from KPMG found that the expected retirement age has been increasing and Australians are now retiring at their oldest age since the early 1970s.
The expected retirement age has been increasing and Australians are now retiring at their oldest age since the early 1970s
As well as people like Harold who work longer because of their life circumstances, others may also work later in life than they had planned, in an effort to make up for the impact of market disruptions like the global financial crisis and the COVID-19 pandemic.
"As Australians age and they seek to work longer and or return to work, insurances both inside superannuation and in the retail market, are not keeping pace with consumer demand," says Chris Grice, chief executive officer at National Seniors Australia.
We see distressed consumers who become aware their TPD entitlements are shrinking or ceasing as the retirement age looms
Alexandra Kelly, Financial Rights Legal Centre
Alexandra Kelly, director of casework at Financial Rights Legal Centre, says that there "can be a real mismatch of expectation and reality" with this insurance. She said the Centre is seeing changes in the Australians aged 60 and over who contact their service – they often have more debt and need to delay retirement.
"We see distressed consumers who become aware their TPD entitlements are shrinking or ceasing as the retirement age looms," Kelly says.
Mennen also says that the current system may not meet older Australians' needs. "There's a real question about whether the superannuation retirement system, which is designed around compulsory contributions up to a fixed preservation age, needs a rethink, given this large cohort who are working longer and would benefit from the superannuation contributions and insurance coverage that comes along with that," he says.
Is this insurance working for older Australians?
"Generally, insurance levels decline substantially once people pass their middle-life period," explains Mennen.
Grice says that super funds have reduced the amount of cover they offer older Australians since the government introduced its Protecting Your Super reforms. These reforms protect people, particularly younger Australians and those with low balances, from having insurance fees erode their super.
"An unintended consequence (of the reforms) was that it reduced the size of the premium pool for insurance, and for some [super providers] it reduced their appetite and capacity to offer affordable cover or even cover at all to the older cohort," Grice says.
The Financial Rights Legal Centre has seen clients who can't afford disability cover as they approach retirement age
Kelly says that the Financial Rights Legal Centre has seen clients who can't afford disability cover as they approach retirement age. "For many, they are not in a position to seek additional alternative cover as premium loadings are unaffordable," she explains.
Kelly also sees that some people may have acquired pre-existing health issues by this age, making it harder to get alternative cover.
One in seven Australians retire because of injury, illness or disability. Older Australians are more likely to have a disability that may impact their ability to work.
This means the chance of claiming on your death or disability cover increases as you get older, and insurers have priced in that higher risk.
"As you age, default insurance in super gets more expensive relative to the level of cover you get," Quinn explains.
"Your amount of default cover drops as you get to 60 and beyond. So, at the time when you're more likely to need to claim on your insurance, you're paying for a much lower-value product."
How to make sure the insurance in your super works for you
Working out what cover you have exactly is notoriously tricky and the product disclosure statements are complex and hard to compare. Try these simple tips to check on your super.
- Email or write to your super fund and ask them to confirm what insurance you have in your super, the fees you pay, how much you would get if you have to claim and whether you're eligible to claim, based on your job and working hours.
- Use the MoneySmart life insurance calculator to work out whether you need death cover.
Use the MoneySmart life insurance claims comparison tool to check which insurer your fund uses – some are better than others on paying claims. If you're not sure who the insurer is, ask your fund.
Very different costs for this insurance
Super Consumers Australia found the default cost of this insurance can differ dramatically depending on which fund you're with. At age 60, you may be paying as little as $114 or as much as $1082 per year for combined death and disability cover. For 65-year-olds, some cover costs more than 16 times as much as at a rival fund.
The graphic below shows the difference in annual costs for disability cover for 65-year-olds at Australia's ten biggest funds.
Very different amounts of cover
Not only is the cost of this insurance all over the place, but Super Consumers Australia's analysis found that the level of default cover varies massively across funds.
"The wide variations in cover versus cost means it's not really possible for people to understand the cover they have and why," says Quinn. "It means people's expectations of how much cover they have may not match the reality."
A 60-year-old who becomes permanently disabled will get anywhere from $5,000 from the default disability insurance at AustralianSuper or ten times this amount ($50,000) if they're with ANZ
While it's possible to pay more to increase your cover, ASIC's 2013 research confirms that most people pay the same premiums and get the same level of cover that the fund automatically sets for you when you join. If you apply for extra cover, your fund may make you do health tests. If these tests show pre-existing health conditions, the fund may not offer you cover, or may charge more for cover.
A 60-year-old who becomes permanently disabled will get anywhere from $5,000 from the default disability insurance at AustralianSuper or ten times this amount ($50,000) if they're with ANZ.
But this is not an easy comparison, and some funds are reviewing and changing their cover.
Richard Land, head of insurance product at AustralianSuper, told Super Consumers Australia that the fund is reducing its premiums from September 2024.
Our analysis found that three of the 10 biggest funds offer income protection insurance as default cover
Further, Land said the fund includes income protection insurance – which pays a monthly amount if you're temporarily unable to work due to injury or illness – as a default, while most other funds only provide TPD cover as the default disability insurance. This inclusion means a 60-year-old AustralianSuper member would also receive monthly income protection payments of $2700 for two years. This could mean up to $64,800 extra cover with AustralianSuper.
Our analysis found that three of the 10 biggest funds offer income protection insurance as default cover. This disparity introduces another layer of complexity for members trying to compare super.
How much you're entitled to as a 65-year-old also differs wildly depending on your fund. At some funds, including AustralianSuper, CBUS and MLC, you can't get any disability cover or payout at this age. On the other hand, you could get $20,000 if you're with ANZ.
It's a similar story with death cover for older Australians: ANZ will pay $35,000 in death cover to the beneficiaries (usually the spouse or children) of a 70-year-old member who dies. However, at six of the ten biggest funds (Australian Retirement Trust, AustralianSuper, Aware, CBUS, MLC and Rest), 70-year-olds can't get any death cover.
How much are people paying for cover?
The graphic below shows how much default disability and death cover you get at each of the ten biggest super funds. It illustrates the differing approaches across funds; some offer the same payout for disability and death insurance, others offer almost twice as much for death cover.
Note that it isn't necessarily the case that the funds that pay the most are the best, or the most suited to everyone's needs. There are trade-offs involved: the more you pay out of your super for insurance premiums, the less you have in retirement income.
Insurance premiums can eat away at your super. In 2018, the Productivity Commission found that a typical blue-collar worker receiving a low income and paying for death, TPD and income protection insurance would have $85,000 (14%) less to spend at retirement than if they had no insurance. In an extreme example, the worker's retirement income could be reduced by $125,000 (28%).
In 2018, the Productivity Commission found that a typical blue-collar worker receiving a low income and paying for death, TPD and income protection insurance would have $85,000 (14%) less to spend at retirement than if they had no insurance
Factors like how much super or other savings you have, your health and the kind of work you do (and the likelihood of being injured at work) all impact what is the right level of cover for you.
Some funds only offer combined death and disability cover, while others offer them separately, further complicating any attempt to compare funds on value.
With these disclaimers in mind, we've calculated how much you pay for each $1000 of default cover at age 60 in the following graphic.
How funds price their insurance
Quinn says it's unclear what's behind the variations in default insurance. "There's no obvious explanation for why different funds are defaulting their members into different cover and costs," she says.
In an email to Super Consumers Australia, a Cbus spokesperson said the fund "aims to provide insurance cover that takes into consideration the risk profiles of the construction and building industry and other manual industries where our members work".
The spokesperson also said the fund had a 96.54% claim acceptance rate for its disability insurance, fractionally higher than the industry average claim acceptance rate of 92.5% as reported on Moneysmart's Life Insurance Claims Comparison Tool.
The spokesperson said the fund surveyed its members to set an appropriate level of cover and cost for older members
The spokesperson said the fund surveyed its members to set an appropriate level of cover and cost for older members. Asked how they ensured their insurance cover provided good value for older Australians, a spokesperson for Mercer said they were close to finalising an "extensive" review of their insurance arrangements following their merger with BT Super in 2023.
"The larger fund size following the merger makes it possible to secure better pricing for members.
"We will have more to say about pricing and savings for members when that process is completed," the spokesperson said.
Claiming on disability insurance
Our analysis found that some disability insurance in super policies make it much harder for people aged 65 or over to claim.
For example, stricter tests may apply to see if members are considered disabled and are entitled to a payout.
At the Commonwealth Super Corporation (CSC), a fund for public servants,members aged 65 or over must meet a stricter definition of disablement to claim on their disability insurance.The stricter test involves showing they have either suffered a loss of limb or loss of sight such that they can no longer work, or that their disability means they can't do at least two of the 'activities of daily work', such as moving around, lifting objects, talking, seeing or basic dexterity tasks such as tying their shoes.
Even those members who have previously been healthy and working but become unable to work through injury may be ineligible to claim on the insurance they have paid over many years
Lawyers working in the field have told Super Consumers Australia that barely anyone qualifies for a payout under this tougher test.
An ASIC report found that claims assessed under the more restrictive 'Activities of Daily Living' and 'Activities of Daily Work' tests had a 60% decline rate, five times higher than the average decline rate for all other claims. Even those members who have previously been healthy and working but become unable to work through injury may be ineligible to claim on the insurance they have paid over many years.
A CSC spokesperson told Super Consumers Australia the fund included the stricter 'Activities of Daily Work' test for over 65s (and other groups) as a "strategic move to ensure our cover is tailored to members' needs as they grow older whilst keeping premiums affordable."
"As members reach the age of 65, their financial responsibilities typically decrease as they approach retirement and pay off their mortgage, reducing their need for extensive and costly protection."
"Concurrently, it's a critical period where many members seek to maximise their account balances for retirement income. An Activities of Daily Work definition allows our members to preserve more of their superannuation savings and remain covered," the spokesperson said.
Super Consumers Australia believes the system could be working better for older Australians
"The Activities of Daily Work test does, however, mean that older people with this insurance will only receive a payout under a limited set of circumstances."
Super Consumers Australia believes the system could be working better for older Australians.
"Given the amount of money that Australians pour into insurance in super, we should think about different options, like a public social safety net for people who stop work due to injury," says Quinn.
"It isn't clear why the cost and cover go up or down depending on your fund.
"It seems funds could be doing much more to understand their members, whether they need insurance at this stage of life, and, if they need it, how much and why."
The technology barrier
Mennen says there are significant technological barriers for older Australians to claim on this insurance. For example, a person making a claim may have to use online resources to gather documents from government departments; this may require a high level of digital literacy.
At the Financial Rights Legal Centre, whose Insurance Law Service has been providing advice to Australians since 2007, Kelly says people often complain about insurance processes assuming access to technology and relying on email and electronic tools that don't suit everyone.
A person making a claim may have to use online resources to gather documents from government departments
"Insurance claims processes need to improve and be better tailored to consumer vulnerabilities – whether it be age, disability, technology poverty," Kelly says. "Conversations about accessibility need to be happening – insurers and funds need to ask, and not assume a technology illiterate or technology-poor consumer will self identify."
A 2023 report from Good Things Foundation found that 70% of people aged 65 or older aren't confident they can keep up to date with technological changes. National Seniors also told CHOICE in 2023 that many older Australians can't afford an internet connection.
Why we need a review of insurance in super
"Following our deep dive into this insurance, it's clear that it doesn't offer value for all older Australians, or is keeping up with changes in how we work," says Quinn.
"The average Australian is retiring just before 65. But whether you need to protect your income in your later working years depends on your job, your health and a raft of other factors. It's hard to generalise about the 'average' person nearing retirement in 2024. The result is that some people are paying for insurance they don't need, or that will be very hard to claim on."
Back in 2018, the Productivity Commission recommended an independent review of insurance in super within four years. Quinn says it's high time the government gets the ball rolling on this review.
"We need a comprehensive review of insurance in super to determine if the system still works for the millions of Australians with this type of insurance, including older people. A review could also look into whether there is a better way to look after older Australians who have to stop work because of illness or injury."
This content was produced by Super Consumers Australia which is an independent, nonprofit consumer organisation partnering with CHOICE to advance and protect the interests of people in the Australian superannuation system.
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