Superannuation fund insurance policies may fail many older Australians

‘Activities of daily living tests’ preventing payouts to unemployed Aussies.

Side view of elderly man sitting on wheelchair looking at life insurance contract form

Hundreds of thousands of Australians who have paid a working lifetime of life insurance through their superannuation may soon find they have wasted their money.

In many instances, life insurance paid through superannuation funds has been voided by highly restrictive definitions of disability for unemployed, casual, contract and part-time workers.

The definitions have meant that many Australians have been denied insurance payouts for years and have forced some to choose between keeping their home and buying essential medications, reports the ABC.

And thousands more may soon face similar decisions due to the COVID-19 pandemic and the resulting recession.

Payments are being denied due to a condition called the ‘activities of daily living test’.

“It actually requires that the claimant be permanently unable to feed themselves, wash themselves or dress themselves,” said Maurice Blackburn lawyer Josh Mennen.

“So these are very difficult tests to satisfy.”

The majority of claimants fail the daily living test, according to data from the Australian Securities and Investments Commission (ASIC).

“People who have to apply under an activities of daily living test have a 60 per cent claim denial rate, that is versus a 12 per cent claim denial rate under the standard test,” said Xavier O’Halloran from Super Consumers Australia.

“This test is really designed to restrict people from claiming,” he added.

“It’s to save money. The insurers know it and they’re already looking at ways that they can remove some of these tests because they know that there’s a real bad public image around this stuff.”

Not everyone needs to satisfy the daily living test. For most to successfully claim, they only have to provide medical evidence that they can no longer work the job they were in before their accident or illness.

According to Australian Institute of Health and Welfare data, in January 2018, Australians aged 65 and over had a workforce participation rate of 13 per cent. Australian workplace statistics show that around 20 per cent of serious injury claims are made by workers aged 55 and over.

These are the older Australians who, when it comes to claiming disability insurance through their super, may be at a major disadvantage, say lawyers. They say it’s close to impossible for a casual employee to successfully claim on death and disability insurance, especially if their injury forces them out of work.

The ABC reported that Super Consumers Australia research revealed the majority of policies from the biggest super funds apply restrictive disability tests on the basis of work status.

In fact, 94 per cent of the 32 policies studied make it difficult for unemployed people to claim on their disability insurance.

Almost half of the major super funds’ policies make it difficult for part-time workers to even apply. And 16 per cent discriminate against high-risk jobs, even when the illness or injury is unrelated to work.

ABS labour force figures estimate that 2.3 million Australians have lost their jobs or had their hours cut in April and May as the pandemic took down many sectors and wiped out portions of our economy.

“As we see the fallout from the COVID pandemic in the form of unemployment and underemployment, we are likely to see large numbers of people making claims only to discover the insurer relying upon harsh activities of daily living definitions,” said Mr Mennen.

In response, until 27 September, members of the Financial Services Council have agreed to waive the restrictive definitions for those who have lost their jobs or hours of work caused by the pandemic.

However, around 343,000 fund members will be vulnerable if they are still out of work after that date, according to Super Consumers Australia research.

Those thinking they can rely on super-based life insurance should know their super funds’ insurance policies apply the activities of daily living test – or similar restrictive tests – as soon as a claimant becomes unemployed.

And many policies push people onto more restrictive disability definitions once they have been unemployed for three months or more.

But Mr Mennen said super funds and their insurers are starting to back away from this practice or are only applying the tests after claimants have been unemployed for at least two years instead of a few months.

“These types of definitions are only applied in a relatively small number of cases,” he said.

“They are still a significant problem that needs to be stamped out within the industry.

“And I think that the industry has gotten the message and it is moving away from these types of substandard policy terms.”

Have you ever had any trouble making an insurance claim?

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    To make a comment, please register or login
    10th Jul 2020
    What you are describing is not Life Insurance which only pays out on death
    Horace Cope
    10th Jul 2020
    Insurance associated with super has been compulsory unless members opted out in writing. The default position should have been opt in. I'm not sure if this has been changed although there was talk about doing so. I found it a rip-off as I was given a cover of $5,000 at $1.00 per week but a quick check with a few insurance companies gave me the same cover for an average of $0.43¢ per month.
    The Thinker
    11th Jul 2020
    I opted out in writing years ago because I saw what a big rip off it was. When you are employed by a company they are insured to cover you. When you are self-employed you pay your own insurances. Super insurance is nothing but an expensive wrought.
    10th Jul 2020
    Another useless insurance product seemingly and forcibly sold without the client really knowing what they're getting? Sounds familiar.
    The Thinker
    11th Jul 2020
    Consumers need to investigate every business deal. Laws to protect consumers were absolved years ago.
    11th Jul 2020
    It is neither forcibly sold nor compulsorary to have it. It may be an automatic inclusion in your superfund (for which you pay) BUT you can cancel all insurance at any time. I did.
    10th Jul 2020
    Had a policy with a Swiss company, payments went up to $1300 a month after the age of 65. Never again.
    10th Jul 2020
    So when is the government going to step in and negate this fraud ?????
    The Thinker
    11th Jul 2020
    It won't because it's receiving kickbacks from it.
    10th Jul 2020
    Have a friend, a single lady and a nurse, who was unable to work from age 63. Similar situation, no pay-out from insurer. Fortunately she had her union on her side. Took nearly two years of indignation before the insurer suddenly paid out and backdated the payments. It only took a suggestion she may go to the Royal Commission for the insurer to "re-assess" (their words) her claim and offer her a satisfactory lump sum to settle her claim. She now has adequate funds to live comfortably until she qualifies for the age pension. Unfortunately she seems to be one of the lucky ones.
    Workers compensation also employs some very dodgy "tests" to minimise payouts to injured workers. Seems a common practice with personal injury insurance companies. Life insurance companies cannot dispute liability if you are dead.
    The Thinker
    11th Jul 2020
    She was lucky because she had the Union backing her. Too many workers don't because they were misled into believing unions are bad.
    11th Jul 2020
    In other words just a total scam,I worked after I retired limited hrs joined the company super paid into it found out,that I should have unticked the box where it says income protection,because I’m receiving pension it would not be payable,your age and status is on the form you would think that they would know but they just keep quiet,now I don’t trust any of them banks insurances politicians,they don’t give a rats ass,65 filling in forms you probably can’t see properly ,and should have had a lawyer to transcribe for you.why is there always a scam in all of these forms,how many starting a job have the time to read all the fine print ,I have now saved my own money for a rainy day they can all go jump.
    11th Jul 2020
    You can't have it both ways Hairy. Clearly you are/were perfectly competent to perform the tasks of your work then you claim that at 65 you can't see the forms to fill in properly (even though you actually did complete all the other information). I suspect you simply didn't read it properly and now want someone else to blame.

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