It is not unusual for school teachers approaching retirement to change their work status to that of a casual relief teacher. But what is the impact of this decision on the individual’s income protection (IP) insurance cover?
In 2012, the member reduced her hours so she worked, on average, no more than ten hours each week. The case was essentially about her changing work patterns and the effect that had on her IP insurance.
The first decision being reviewed was that of the trustee refusing to pay back premiums deducted during the period January 2012 to July 2016, when IP cover ceased. The second decision under review concerned whether the trustee had appropriately disclosed changes to the IP cover in 2015 when the number of hours required to work for the cover increased from ten to fourteen.
AFCA had to explore whether the trustee should have cancelled the IP cover when the member first reduced her hours. Obviously, the trustee had knowledge her hours were reducing because her employer Superannuation Guarantee (SG) contributions would have significantly decreased, but that alone did not necessarily mean she no-longer wanted IP cover. AFCA held that the “trustee could not be aware of any other income-producing employment the complainant may have had if she did not disclose this” to the trustee.
The member did not contact the trustee until July 2016 when she applied for a benefit payment having reached her preservation age. At this time, she advised that “she had permanently retired from the workforce” and she had no intention of becoming “gainfully employed for 10 hours or more a week.” In a phone call in May 2019 with a trustee representative, the member was told the trustee could not assume how much time she was working at any time, even though she had signed the not working more than 10 hours declaration in 2016. This was because she may have returned to work at some time that would have entitled her to an IP benefit if she made a successful claim. AFCA agreed with the trustee that it was right to not have cancelled her cover and, accordingly, correct to not refund her premiums.
The second issue being considered was disclosure. On 5 September 2015, the member was sent a benefit statement for the first six months of that year. The statement included advice that while the premiums for IP cover were to remain the same, going forward, a member was only eligible for cover if they worked 14 hours per week. On the basis of this disclosure, AFCA held the trustee had appropriately advised the member of the changes it had made to the IP cover and, therefore, the trustee’s decision to not compensate the member for the years when she had paid for cover but was not eligible for it under the policy terms was fair and reasonable.
Case number 643664, dated 21 January 2020
The trustee had introduced automatic salary continuance cover insurance (SCI) for its members that ceased 120 days after the last employer contribution was received. The member’s cover was cancelled for this reason. The complaint was about this because the member was now ill and could not get any cover.
The member had two employers making contributions to the fund but there was a period of just over six months when no employer contributions were received. The member’s SCI cover was cancelled on 8 September 2012. The member was warned of the impending cancellation in a letter that was sent to him 75 days before cover was cancelled. The member argued that he had not received this letter and more than one letter should have been sent to him. He also pointed out that he was advised he was entitled to automatic cover when he became a permanent employee of employer 2. The trustee had no record of this alleged conversation.
The first question to answer was whether the trustee was correct in cancelling the member’s cover.
Put bluntly –- the policy terms stated cover ceased after 120 days of no employer contributions. The policy had such a term to stop a member’s account balance being inappropriately eroded by the cost of insurance premiums. AFCA carefully satisfied itself that the relevant 120 days of no employer contributions did, as matter of fact, occur and, therefore, the trustee had no choice but to cancel the cover.
The trustee also sent the member a warning letter, and was able to prove the mailing of this letter and that it had not received notification of a failed delivered. On this basis, AFCA held that, on the balance of probabilities, the letter was sent and the trustee could not be at fault if the member failed to read the letter. It was noted that in similar circumstances today, a fund complying with the Insurance in Superannuation Code would have sent two warning letters to the member, but it was not fair to judge the trustee by standards introduced some six years after the events in dispute.
Other disclosures to the member also summarised the insurance terms, although it was noted the insurance booklet could have been clearer that an underwriting application was required not only if someone opted out of SCI, but also if SCI cover lapsed on the grounds of no employer contributions being made. Notwithstanding this criticism, the general principal that insurance cover was not automatic if you had previously had the same cover was adequately conveyed.
The member’s six monthly statement, after the SCI had been cancelled, clearly indicated he had no cover. It appears however that the member had not read the statement carefully because a few months later, he phoned the trustee to increase cover only to discover he had no cover at all. By this this time, the member had been diagnosed with a serious illness and getting cover for that illness was not possible.
The member pointed out that he was advised cover was automatic on becoming a permanent employee of employer 2. Here AFCA noted the member’s circumstances were somewhat unique in that he had already had cover that lapsed when he had a previous break in employment from employer 2. Under the policy terms, once cover had ceased it needed to be underwritten to commence once more. Further, even if you assumed this misrepresentation was made (which could not be proved), the remedy is to put the person in the position he would have been if the representation had not been made, and by January 2013 there was no evidence the member would have, or could have, done anything differently if he knew he had no cover. AFCA held the trustee’s decision with respect to the member’s SCI cover was fair and reasonable.
Case number – 617082, dated 5 December 2019