AustralianSuper drops automatic insurance for the young

The nation’s largest superannuation fund plans to cancel automatic life insurance cover for new members under 25.

Eftelya Gursoy says she doesn’t need life insurance from her super fund. Picture: Britta Campion

The nation’s largest superannuation fund, the $120 billion AustralianSuper, will today announce an industry-leading move to cancel automatic but savings-eroding life insurance cover for new members under 25 years of age.

With the industry this week poised to release a draft code of practice put together by the Insurance in Superannuation Working Group, which was established in the wake of numerous scandals in the life insurance sector, AustralianSuper said it was going “further” than what the draft code propose to prevent life insurance from eroding the savings of young Australians.

The move means about 30,000 new AustralianSuper members each year will not be given automatic coverage for total and permanent disability, death and income protection insurance. About 70 per cent of Australians receive life insurance through superannuation, where it is provided on an opt-out basis.

Life insurance cover in super has drawn increasing scrutiny for needlessly eroding the savings of young Australians with volatile premium hikes.

Meanwhile, claims-handling scandals — such as the one at Commonwealth Bank’s CommInsure, which was found to be using outdated definitions of heart attack to deny claims — have sparked a parliamentary inquiry into the sector and investigations by the corporate watchdog ASIC.

“AustralianSuper has made this decision in the best interest of our members,” the fund’s group executive of membership Rose Kerlin said.

“We wanted to be leaders in this area. Hopefully other funds will do a review, and we will see other changes,” she told The Australian.

Ms Kerlin said the fund had listened to many parents who were concerned their children’s savings were being eroded by life insurance cover.

An average member who joins AustralianSuper at 15 years of age will pay about $600 for life insurance cover over the following decade. If that money was instead invested, it would turn into $9000 by retirement.

AustralianSuper, which has 150,000 insured members under the age of 25, only pays about 20 claims each year for total and permanent disability.

Younger members will still be able to opt into insurance, and will be automatically given cover after the age of 25, which they are able to opt out of. The changes will take effect next November.

Eftelya Gursoy, a high school student from Baulkam Hills who works as a part-time dental assistant, said other funds should consider making the same move. A member of REST industry super for about 1½ years, Ms Gursoy said she was unsure how much she was paying for life insurance, which she said she didn’t need.

“It’s like paying for home insurance when you don’t have a house — I’m not going to die anytime soon and I don’t have any children,” Ms Gursoy told The Australian.

Insurance premiums have risen dramatically in recent years as awareness of benefits and the number of claims has grown.

A recent Rice Warner report found an average premium rise of 215 per cent for death and total and permanent disability cover over the past four years, while income protection rates rose a cumulative 82 per cent over the same period.

That report found extreme cases of balance erosion for some young workers in heavy manual occupation, who could lose up to a third of their account balance over their lifetime due to high rates charged for life insurance, which could see a saver missing out on as much as $600,000 at retirement.

Providing insurance on an opt-out basis was recommended by the government’s 2010 Cooper review of superannuation.

Current Financial Services Minister Kelly O’Dwyer last week introduced legislation to make super funds more transparent and accountable for how they spend member money through new reporting guidelines.

A new report by Association of Superannuation Funds of Australia researcher Ross Clare found Australians had a one-in-four chance of claiming on income protection policies for temporary illness.

Five per cent of fund members will claim on total-and-permanent disability, the same likelihood of a death benefit being paid to the family of a saver.