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Need to know
- Restrictive tests such as the activities of daily living (ADL) test have led to some Australians paying for junk insurance through their super
- Super Consumers Australia has praised some funds for removing these restrictive terms from their insurance, but other funds continue to include them
For the most part, if you claim on the disability insurance in your super it will pay out if you meet the test to show you can't work again.
But for some fund members, a different and much tougher test applies.
ADLs creating 'junk insurance' in super
The most common restrictive test is known as the activities of daily living (ADL) test. It most often applies to members who are in one of these four categories:
- People working in 'hazardous occupations'
- Part-time or casual workers
- Full-time carers
- People out of the workforce.
To get your insurance paid out where the ADL test applies, you generally need to show you can't do at least two out of five of this list of basic activities:
- Walking
- Talking
- Dressing yourself
- Feeding
- Bathing
Some funds have an activities of daily work (ADW) test, which operates similarly to set an extremely high bar for some claimants.
What the ADL and ADW tests mean
If your claim is assessed under one of these restrictive tests, you'd need to be ill or injured to the point that you need assistance to go about the most basic activities.
It's entirely possible you could be disabled and not have any prospect of working again, yet still fail an ADL or ADW test.
No difference in premiums
Despite this insurance being far less valuable (because the likelihood of being paid out is much lower), the premiums cost the same.
"Fund members whose claims would be assessed under these restrictive tests are effectively paying for 'junk insurance'," says Xavier O'Halloran, director of Super Consumers Australia.
In typically restrained language from the regulator ASIC, its new report is clear on the harm done by the ADL test: "Claims assessed under the ADL eligibility test generally result in poor consumer outcomes," it says.
The human cost of restrictive tests
The regulator and consumer advocates have long recognised that ADL tests are unfair to disabled fund members who don't qualify for their insurance but have lost the capacity to work and earn.
We've previously told the story of Rachel, who was unable to keep working in her customer service job, but whose claim was denied because an ADL test applied. In her case, this was because she was technically a casual worker.
Sydney truck driver Wayne was another Australian to have his disability insurance claim rejected because a restrictive test classified his job as hazardous.
Some funds have removed the tests
The good news is that some funds have recognised that this test isn't in the best interests of their members and have been removing it from their policies. But this is a work in progress.
In 2020, we contacted 20 funds to see if they were removing restrictive tests. Many told us they were reviewing them, while others committed to getting rid of them or reducing their impact.
This year, we followed up to see whether they'd made good on these promises. Some had removed these terms altogether for new claims.
Disappointingly, a couple of holdout funds failed to make any commitment to review or remove restrictive tests.
Where is your super fund at?
This graphic below displays the status of super funds who haven't removed the junk terms.
If your fund isn't shown and you're unclear whether a restrictive term applies to you, the best thing to do is to write to or email your fund. You can use our template to get some clarity on your cover.
Note: the graphic shows only those MySuper funds that had restrictive terms at one point. If your fund isn't shown in the graphic, it may be a choice fund or it may not have had these terms in the recent past.
Super Consumers Australia: 'Holdout funds need to act ASAP'
"We applaud funds who have removed these restrictive terms," says Super Consumer Australia's Xavier O'Halloran.
"It shows that removing or reducing the impact of these terms can be done. We call on the holdout super funds to remove these terms and make sure all their members can rely on their insurance if they're ever forced out of work by illness or injury."
"Unfortunately, we have funds like IOOF, Prime, Spirit and Telstra Super who have failed to make commitments to remove or significantly reduce the restrictive terms. This will see some of their members paying for junk insurance that they'll struggle to claim on."
Unfortunately, we have funds like IOOF, Prime, Spirit and Telstra Super who have failed to make commitments to remove or significantly reduce the restrictive terms
Xavier O'Halloran, Super Consumer Australia
Disability insurance is bundled with super, and each policy is based on a contract between the super fund and insurer. Some funds have said they need to wait until their current contract expires to take action.
But ASIC has made clear that both insurers and super funds should start improving restrictive tests as soon as possible and not wait until their contracts end.
New obligations for super funds and insurers
From October 2021, all super funds will have to comply with new rules known as the Design and Distribution Obligations.
The obligations will require financial services firms (such as super funds and life insurers) to design products, including the disability insurance in super, to meet the needs of their consumers.
O'Halloran says this new consumer focus will put even more pressure on funds and insurers to understand the needs of their member base and make sure the disability insurance they offer is right for their members.
Nobody should be having their retirement income eroded by insurance cover that won't help them in their hour of need
Xavier O'Halloran, Super Consumers Australia
"It's clearly not in the best interests of a casual worker with minimal super contributions to have their retirement income eroded by insurance they'll struggle to claim on," says O'Halloran.
"More broadly, nobody should be having their retirement income eroded by insurance cover that won't help them in their hour of need."
"We're calling on those laggard funds to do better."
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.
