Older Aussies at risk of ‘dud’ insurance

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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Written by Leon Della Bosca

Publisher of YourLifeChoices – Australia's most-trusted and longest-running retirement website. A trusted voice on Australia's retirement landscape, including retirement income and planning, government entitlements, lifestyle and news and information relevant to Australians over 50. Leon has worked in publishing for more than 25 years and is also a travel writer and editor, graphic designer and photographer.

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