Personal insurance is a must have for protection against any potential health disasters. For those already retired, you should make sure your children have adequate insurance so that if they face a health disaster, you don’t become their insurance policy and jeopardise your own retirement.
One of the benefits of holding insurance through a large group superannuation fund is that members often benefit from features such as automatic acceptance, no underwriting and low cost cover. These characteristics sound great, but members need to be aware that there may be potential traps. Here I discuss just a couple of things to look out for before you can rest easy that your insurance cover is adequate.
1. Unitised Cover
One of the biggest traps is that super funds often offer members unitised cover, with ‘units’ costing $xxx per unit. Members may be offered a certain number of units of cover without needing to undergo underwriting. This is great while you are young and you can obtain a lot of cover at low cost.
However, with a unitised structure, often what happens is the amount of cover per unit reduces with age automatically. The issue is that reducing cover may not be appropriate for your situation with the amount of insurance you have reducing at a time when you may need it the most… that is, when you’re ageing and health issues start cropping up.
The reason the unitised structure works for the super funds and the insurance companies is that when their members are older (and more risky), the amount of cover they are exposed to reduces. But this is not usually the best outcome for members.
2. Medical Definitions
This is something that is relevant for any insurance policies. It might sounds like common sense, but you need to know what you are actually covered for. More relevant for income protection, disability and trauma covers, it is imperative that one understands what the policy defines as ‘being disabled’ or ‘not able to work’. In addition, there may be particular medical conditions that are not covered by a particular policy. And as medical advances witness new conditions or ways to measure these conditions, you need to know if the insurance policies are being upgraded to capture these new changes.
And guess what? If the insurance policy does not cover a medical condition you suffer, you won’t get paid on a claim.
3. Customer Service and Payment of Claims
Although we all hope our insurance cover is a ‘waste of money’ (so that we don’t make a claim), when is your insurance at its most valuable? When you make a claim… and it is at claim time that you value the benefits being paid to you in a timely fashion. So, do you understand the claims history of the insurer? And do you know what is involved to get paid a claim?
These are extremely important questions to ask because at the time of a claim, there are far bigger personal issues to manage than having to worry about dealing with an insurance company. Far too often have we seen insurance companies and large super funds make life very difficult for families trying to access much needed funds in very unfortunate events. This can be avoided by ensuring the insurance company you deal with is customer focused. Another way to get around this is to have your financial adviser do all the legwork for you so that you don’t have to.
4. Increasing Costs
We are seeing a recent trend in large super funds of increasing insurance costs. This is largely due to an increasing number of claims by members… and many of those who never underwent medical underwriting. It is also the result of these large funds passing on much of the increasing costs of running the insurance part of the funds. This is just something to keep a look out for as your insurance premiums may simply increase without you realising it.
The key message in all this is that insurance is not as simple as taking out the cheapest policy for the amount you receive automatically. You need to think about whether or not you actually want to be paid what you need to be paid when something happens to you. If you are not certain your family will be taken care of in an unforseen event, then you need to review your insurance position immediately.