Up to 2.5 million people who are paying premiums for group insurance offered through superannuation need to examine their eligibility, as differences between super funds’ policies could mean they have reduced cover, or even none at all. Investment Magazine investigates.
For the vast majority, group insurance is working well, providing cover to a nation that has historically been underinsured.
However, defaulting all employees into a group product means that some are unwittingly paying premiums for a product they could never use, as they fail to meet eligibility requirements.
Two groups in particular are at risk of not being able to claim; Australians living overseas and foreign workers in Australia.
There are an estimated one million Australian expats living around the world, most having left the country for employment opportunities and planning to return at a later date. Some funds, such as AustralianSuper, say they will in most cases cover members worldwide as long as premiums are paid, while others, such as IOOF, will remove cover after a period of time.
In Australia, one-and-a-half million foreign nationals have a visa that grants them a right to work. In keeping with other workers in the country, most are put into the default superannuation option featuring group insurance. However, depending on their visa type and depending on the fund, they may or may not be able to claim.
John Berrill, principal at Berrill Legal, said that while a product disclosure statement (PDS) is supposed to be a summary of the insurance policy, eligibility is not necessarily in the fine print.
“Every PDS says, ‘You can’t rely on this, you need to consult the insurance policy’. The message is, if you are a foreign national be wary, check it out with them to make sure you are being covered, or get advice on it.”
“The flip side is that for Australians travelling overseas there are some funds with policies that say payments stop after a period of time. For example, AMP says payments from an income-protection claim stop after 3 months, AustralianSuper says 6 months, while IOOF says if you are overseas for 3 years all your cover [life, total and permanent disability, income protection] expires, not just that the payments stop.”
Adam Bolton, financial adviser at Atlas Wealth Management, says there is no such thing as a “one-size-fits-all” for an Australian expat.
“If we are reviewing the group insurance within a superannuation fund for an Australian expat the biggest issue, we find, is getting a clear definition of if the client were to claim, whether they would be declined based on their living arrangements.”
He said while a number of policies give a generic answer of “Yes, the policies are valid while the client is overseas”, when probed further this is only based on whether the client is on holiday or travelling for business and only temporarily overseas.
When it was explained that the client was 1) an Australian non-resident for tax purposes, 2) that they have been living and working overseas for x amount of time, and 3) they planned to remain in this arrangement for the foreseeable future or x number of years, then a clear answer to whether they were covered became a lot more difficult to obtain.
“We have found that group insurers are hesitant to put into writing anything to clarify our client’s position specifically. Offer documents or PDSs are often ambiguous at best when it comes to Australian expats’ living arrangements.
“This is where, as advisers, it becomes tricky. How do you fairly assess the client’s best interests and suitability of existing cover when there is no clear answer as to whether the client truly is covered by these policies or if they are paying for something that, come claim time, is void?”
The policy setting for insurance seems to come from the super funds themselves, as the same group insurer can underwrite two separate products which have different eligibility requirements.
For example, XYZ Super Fund has two different account types that both provide group cover.
Account type A is a generic off-the-shelf product which does not provide cover if the member moves overseas and becomes an expat (non-resident for tax purposes).
Account type B is for a particular sector or department where cover is provided while living and working overseas providing they are in a Department of Foreign Affairs and Trade (DFAT) 1- or 2-rated country (there are four ratings, with 1 being the safest and 4 being the most dangerous).
Both policies could be underwritten by Large Global Insurance Company Ltd but the terms are different in the fine print.
“We have seen the same provider giving cover for account type ‘A’ but for account type ‘B’ they don’t. They can even be products underwritten by the same insurance group but the terms can still be different based on what was negotiated at the time of the products being offered,” Bolton says.
Some super funds do have a clear definition of eligibility and will keep the policy in place, even if the member is overseas. Others simply require members to inform them of their new living arrangements, and assuming they are in a country rated DFAT 1 or 2, they will still be covered. Still other super funds will communicate that members are not covered or eligible for coverage if they are living and working overseas.
However, even if the member updates their address and it is noted the member is an expat, the policies may not be cancelled.
“In a number of cases we have found clients have already updated their funds with their international address and are noted as non-residents, however insurance premiums are still being deducted despite the fact that as Australian expats they are not covered by the policy they are paying for,” Bolton says.
Currently, a case is about to go through the Superannuation Complaints Tribunal between a member, the trustees of a fund and potentially the insurer. The member, despite updating his contact information with the super fund and being listed as overseas, had been paying premiums for 20 years for a product he could never use. Souring the issue further, he was told by his fund that he would not be reimbursed for the premiums.
“Unless the client is made aware of this and specifically cancels the policy themselves they may continue to pay for a product they are not actually entitled to,” Bolton says.