“I was wondering if there is a legal requirement or obligation for an employer to inform the employee's superannuation company about wage increases so the income protection policy is adjusted accordingly?”
- Question from Geoff in Ascot Vale, VIC
Top answer provided by:
Lyle Filer
Hi Geoff,
The short answer is no, generally there is no obligation or legal requirement from your employer to update your super or insurer about wage increases, there could possibly be some instances where there is obligation via an EBA or in an individual contract, but it isn’t something that is usually done.
That being said, it doesn’t necessarily mean the insurance you have won’t increase when you get the pay increase, depending on the cover you have there may be a way for them to know what you are earning and what it comes down to is the type of cover you have.
For the life policies (so life, TPD and income protection) there are 2 main ways you can get the cover either via the retail route, where they write the policy on an individual basis, and it is tailored to you rather than to a group of people and then there is group insurance which a policy that is essentially written for everyone in the group (usually a superfund these days).
For the retail cover you need to have it reviewed as the insured amount may end up being less than the maximum cover that you can get, which is why if you do have retail cover with an adviser, they will make sure that you review your insurance cover at least every 3 years (I like to review more often to make sure my clients know exactly what cover they have).
For this purpose, I am going to assume that the cover you are talking about is group insurance, now there are 2 ways that the group income protection can be done, either linked to your salary or it is a fixed amount (which can be indexed by CPI). If the cover is linked to your income, then the insurer will work out the insured amount and premiums, based on what is going into the fund as employer contributions.
Most of my clients happen to be working for Queensland health so the main group cover I see is QSuper, they work the insured amount on the members base salary so if the contribution amount that fortnight is $350, QSuper will work out the salary like this 350/12.75% =2,745, 2745x26=$71,372 (Q-Health employees get 12.75% employer contributions) as you will see if the member then gets a pay increase the fortnightly contributions will increase which will essentially tell QSuper that the insurance premium/sum insured needs to increase. Keeping in mind this only works with the group insurance that is tied to the salary and the cover won’t change if the sum insured is a fixed amount.
So essentially the employer doesn’t change your income protection amount the superfund does if it is tied to your salary, if you are worried about it all though or are even just unsure about if your cover is right for you the best possible advice, I can give you is to go see an adviser that you can explain exactly what you have and work out if it is right for your personal circumstances, having the right insurance can make a world of difference at claim time and can also provide you with peace of mind knowing that you will be alright financially should something bad happening to you.
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