How life insurance is purchased affects the payout

Buying life insurance through a superannuation fund often results in fewer disputes, faster processing times and higher “payout ratios” than other ways of purchasing cover, new data show.

Statistics from the Australian Prudential Regulation Authority for the year ended June 30 reveal that insurance bought through super funds paid out 85 cents of every dollar of premium in claims for death and 95 cents for total and permanent disability (TPD) claims.

When it comes to life insurance, it pays to read the fine print.
When it comes to life insurance, it pays to read the fine print.CREDIT:GABRIELE CHAROTTE

For insurance purchased through financial advisers, the payout ratio plunged to 42 cents in the dollar for death policies and 49 cents for TPD.

The Australian Securities and Investments Commission’s (ASIC)¬†life insurance comparison tool, which uses the same APRA data, shows that for TPD claims there were 19 disputes per 100,000 claims for cover obtained through group insurance purchased inside super, compared to 36.2 per 100,000 for insurance obtained via advisers.

Death benefit claims took one month, on average, to process through super funds, 1.7 months through advisers and 2.9 months if purchased directly from the insurer.

Death and TPD cover is provided for people who elect their super fund’s “default” investment option. It is usually no more than $100,000 or $200,000 for each, though it can be higher.

There is usually “automatic acceptance” for the default insurance cover, which means there is no medical examination, though there may be a medical history questionnaire.

A fund member may have to undertake a medical examination if they want more than the default level of cover, with a possibility they may be rejected for the extra cover.

Experts say there are reasons that explain the difference in insurance payout ratios inside super funds and policies purchased through advisers…

 

 

 

 

 

This article is from the Sydney Morning Herald, you can read the full article here:

https://www.smh.com.au/money/insurance/how-life-insurance-is-purchased-affects-the-payout-20201022-p567nc.html