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ASFA concerned by significant drop in life insurance coverage

Media Release 28 February 2024

A new research report by the Association of Superannuation Funds of Australia (ASFA) has found a sharp decline in the number of Australians covered by group insurance through superannuation.

ASFA, the voice of super, will today bring the superannuation sector together at the Spotlight on Insurance event in Sydney. Delegates will discuss a range of important issues, including the significant shift in group insurance coverage.

“Group life insurance plays a critical role in the superannuation system, providing affordable and cost-effective cover that delivers real benefits for those whose working life is cut short by accident or illness and their families,” said ASFA CEO, Mary Delahunty.

ASFA’s research has identified a 36 per cent decrease in the number of Australians insured for death benefits through superannuation and a similar reduction in the number of people insured against Total and Permanant Disability (TPD).

“We now face a situation where fewer Australians and their families are covered by group insurance through their superannuation.

“Legislative constraints introduced in 2019 have created a situation where many Australians, including young people, are now without insurance cover, with the near complete lack of default TPD cover for those aged under 25 a concerning issue that may have broader ramifications for the welfare system,” concluded Ms Delahunty.

Key findings:

  • The Protecting Your Super (PYS) and Putting Members Interests First (PMIF) measures led to a substantial reduction in the number of lives insured through superannuation for death benefits. Between June 2018 and June 2023 there was a 36 per cent decrease in the number of lives insured. There was a similar decline in the number covered for TPD.
  • Fund members in aggregate paid less premiums, but for some individuals or their beneficiaries there was a substantial cost in terms of benefits foregone. Some tens of thousands of fund members do not have their super protected or their interests put first by the changes made by the two pieces of legislation.
  • The impact on the Australian community was that there were 5,000 sets of beneficiaries of death benefits who missed out on payments of $665 million in aggregate in 2022-23.
  • Without the PYS and PMIF changes there would have been an additional 11,000 individuals a year receiving around $1.5 billion in TPD benefits.
  • The APRA data also shows a large increase in the incidence of TPD claims. Claims related to mental health issues are likely to have played a significant role in this. Average TPD benefits equate to only a year or two or three of wage income. TPD claimants generally would benefit more from a return to paid employment than from receiving a lump sum payout.
  • Insurance cover is at much higher average levels when fund members engage in regard to insurance. Regulatory requirements in regard to the provision of personal financial advice currently can make such engagement challenging.

ASFA will be convening a dedicated policy working group to further examine the best ways to meet the ongoing insurance needs of all Australians, including young Australians.

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