Ask an Adviser: What Are The Advantages Of Retail Insurance Policies Over Group Cover Through Superannuation? (3)

Top answer provided by:

Dishna Wijenayake

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Hi Matthew,

There are some significant differences between group insurance and retail insurance.

What is Retail Insurance?

Retail Life insurance is generally recommended through a financial adviser or an insurance broker. The adviser will have a discussion with their client and conduct a full analysis to determine the appropriate level/type of cover before an application is submitted. The client’s application will be reviewed by the insurer’s underwriting team.

In some cases, the insurer will apply a premium loading or an exclusion. This decision can be as a result of a number of factors including the client’s medical history, occupation if participating in a hazardous past time or plans to travel to a high-risk destination. A premium loading is a percentage increase on the standard premium to cover the increased level of risk. An exclusion is applied if the insurer wishes to exclude certain medical conditions, hazardous past-time activities, a high-risk occupation or high-risk travel plans. No claims can be made because of the excluded condition. Once assessed the insurer’s underwriting team will advise whether any amended terms will be applied to the policy before policy commencement.

Although the application process can be time-consuming, once the policy is issued, the life insured has more certainty over what there are covered for with their retail insurance policies.

Advantages:

1. Generally, after the policy is put in force, the terms and conditions of the policy will be locked.
2. Policy terms are generally more comprehensive
3. More flexible policy options are available
4. Not unitised – sum insured amount is fixed, with the option to increase with CPI (consumer price index) or another indexation method.
5. Claims can be processed relatively quickly – as policies are fully underwritten at the application stage, the insurer would have more information regarding the life insured, which would speed up the claims process.  

Disadvantages:

1. The application process can be lengthy – because the application will be underwritten
2. Can be more expensive than group insurance

 

What is Group Insurance?

Group insurance is a pooled insurance product offered by a super fund or an employer to a group of people. The policy owner is the trustee of the superannuation fund or the employer. Life insured is the member or the employee. The insurer agrees to offer insurance without collecting detailed personal and health-related information from the life insured. This type of cover is also known as default insurance cover.

Advantages:

1. The application process can be quick and straight forward
2. Up to the automatic acceptance limit, underwriting may not be required.

Disadvantages:

1. Unitised cover - Generally this type of cover is unitised. This means the cost of each unit of cover stays the same over time. However, the amount of cover you get for each unit will reduce as you get older. This means over time, the sum insured amount will reduce unless converted to fixed cover.
2. Terms and conditions can be changed anytime -  as the agreement is between the superannuation trustee/employer and the insurer, terms and conditions can be changed anytime.  Any changes will apply to all existing members as well as new members.  
3. Coverage may not be as comprehensive when compared to retail insurance policies.  
4. Claims processing may take longer– the insurer has very limited personal and medical information of the life insured. Therefore, the insurer will need to gather more personal and medical data at this stage in addition to processing the claim.

Underinsurance is a major issue many Australians are facing right now. Everyone has their own unique insurance needs. Therefore, it is important to find the type of cover that suit you best. Group cover is a convenient method of getting basic coverage, whereas retail insurance policies provide more comprehensive cover with greater certainty and stability.

While the Adviser Ratings Website facilitates the question and answer functionality, all such communications are between users and authorised financial advisers, of which Adviser Ratings has no affiliation. Adviser Ratings is not the advice provider and does not provide financial product advice and only provides information that is general in nature.

Article by:

Dishna Wijenayake

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