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Industry vs Retail Super Funds: 6 Important Differences in Income Protection Cover

Editorial Insurance & Protection, Superannuation 03 Aug 2018

By Ashley Davidson

Many Australians have default Life Insurance and Income Protection in their work super fund. This is probably an Industry super fund such as Cbus, Hesta or Care for example. Perhaps many even realise they have this cover, but I'd suggest not many realise the differences in the quality of the cover when it comes to Income Protection.

Just a few of the differences outlined below can have a life changing effect if something does happen:

  1. Guarantee of Renewability:

Industry super funds have the ability to cancel your cover when certain events occur. If you were to claim on this policy they can simply decide to not cover you any longer. This puts you at potential risk of not being covered for a significant portion of your life.

A good quality retail fund will always guarantee your cover, as long as the premium is paid. This gives you peace of mind that if something happens (which it does) then you will keep your cover into the future.

  1. Claim while unemployed

An industry fund will very often have a clause in their Income Protection policies that if you are unemployed for any reason, you will not be covered. This can be a holiday between jobs, a break between contracts or even potentially maternity leave!

A retail fund will provide full coverage for at least 12 months whilst you are unemployed, between contracts or on maternity leave…or indeed any other reason why you have become unemployed!

  1. Level premiums

The way you pay your premiums can have a massive effect on future affordability of the cover.

The traditional stepped premium will increase each year as you get older, eventually becoming extraordinarily expensive. And sometimes because you absolutely need it, you just have to pay to keep the cover.

On a Level premium, the age increase factor is taken out of the equation until you are 65 and sometimes 70. This takes out by far the largest reason for increasing premiums each year. This provides long term affordability and the ability to keep cover later in life – when you are more likely to need to claim!

Industry funds do not offer Level premiums. Retail funds most certainly do!

  1. Cover whilst overseas

Most industry funds do not allow you to remain overseas for any length of time to receive treatment whilst on a claim. In order to meet their definition, you must either be in Australia to claim or return to Australia for treatment.

Retail funds allow you to remain overseas, even if you have relocated, to receive treatment and of course your claim benefits!

  1. Three tier definition of disability

Industry super funds will only classify you as fully disabled once you can no longer do your occupation at all and needs to remain the case to continue the claim. This is fairly restrictive for members who want to get back to work in some capacity.

For example, there may be a member who wants and is only able to, work 1 day per week. They would mean they are no longer able to claim with an industry fund.

With a retail fund, they are much more generous. Most quality policies have a three tier definition of total disability:

  • Initially, you cannot perform one important duty of your regular occupation
  • 10 hour definition – allows members to work up to 10 hours per week whilst on full claim.
  • Loss of income definition – allows member to earn up to 20% of pre-disability income without losing any claim benefits.

These definitions can vary slightly between insurers but are generally very similar.

This can have a massive effect on how well you return to work and survive financially in the mean time!

  1. Awareness of the premiums and what you are covered for

Many industry super funds include Life insurance and Income Protection as a default policy for their members. This is a positive for many Australians that don’t have any cover at all.

However, these premiums often continue for many years for clients who have sought insurance from a retail fund. Therefore, there are potentially many workers out there paying for two policies income protection policies when they can only claim on one. Or they have more Life insurance than they simply need. These premiums are simply taken from your super balance and is eating away at your hard earned retirement savings!

The value of a good quality advice from an experienced financial planner or risk adviser can be invaluable. These are just a few of the issues that need to be clear to all Australians.

If industry funds don’t make it clear….let an adviser do that for you!

Ashley Davidson from Eastside Insurance Advice in Vermont in Melbourne specialises in personal insurances. He can be contacted for an obligation free chat.

This information may be regarded as general advice. That is, your personal objectives, needs or financial situations were not taken into account when preparing this information. Accordingly, you should consider the appropriateness of any general advice we have given you, having regard to your own objectives, financial situation and needs before acting on it. Where the information relates to a particular financial product, you should obtain and consider the relevant product disclosure statement before making any decision to purchase that financial product.

Was this article helpful?

Adviser Ratings & Industry vs Retail Super Funds: 6 Important Differences in Income Protection Cover, Comments Section:

9 comments

"To those who responded to my comments about commissions by defending commissions: you misunderstand. I have nothing against commissions, nor financial advice, nor finding the best product for your situation. What I have a problem with is an article that ONLY gives positives about retail funds and ONLY negatives about industry funds and does not disclose a conflict of interest. "

George 20:10 on 08 Aug 18

"A good article but point two - Claim whilst unemployed with a retail fund cannot be correct where the income protection cover is owed wholly in the retail super fund because “ to be compliant with the SIS act, an income protection benefit cannot be paid out under a superannuation structure where the insured was not gainfully employed when a disability arises” "

Jon 21:17 on 07 Aug 18

"Pretty much an industry fund bashing article. Generalisation much??"

Steve 13:50 on 07 Aug 18

""George" this article is important because group cover generally has a few pitfalls industry funds or retails funds. As an adviser, yes I do receive a commission but we waive our fee. The fee we waive includes the Statement of Advice which is required by law and protects the client if the adviser provides inadequate advice. The statement of advice fee also includes the cash flow projections to ensure it is affordable to the client or affordable within superannuation without eroding the retirement savings. The fee also includes comparison of different insurers and locating the best policy for our client particularly important as we are regionally located with mining, health and farming the main contributors to our economy. As an adviser I use retails funds, industry funds and advise on SMSF's and there is a reason for each and every client being in those funds. The insurance is the same whether they are in industry, retail or SMSF I look at the insurance offerings and choose cover best suited to my client and we definitely consider gaps in the cover and the affect this may have. George, I would advise you to take on board all information provided to you and if it sounds to good to be true it may well be. I agree some advisers have let consumers down but not all advisers have been a party to such poor behaviour. If you are out there looking for an adviser arm yourself with questions - check out the Money Smart website. If you go it alone make sure you read the product disclosure statements and if you do not understand them ask for assistance from someone with experience in reading legal documents. "

Jo 17:45 on 06 Aug 18

"Suss - most of the retail funds out there are high quality. Much higher quality than the group/industry super fund policies. Some are better than others depending on the individual circumstance. One insurer will be great for tradies while another will be great for white collar......a good adviser will find the right one for the client....which will mean the right cover for the best price. The key is getting advice......"

Ashley 15:29 on 06 Aug 18

"George - a lot of us still do take commissions and need to do so to continue to provide quality, objective advice. Many advisers also work on a fee for service basis now when dealing with more holistic advice. We are advisers and need to be paid for the work we do. I am compelled to and have no problems outlining what I get paid for the advice I sell and products I guide my clients into. The advice is the important thing. Ask any client who has claimed and received the right amount of insurance when they needed it most whether they have any problems with what their adviser got paid...."

Ashley 15:26 on 06 Aug 18

"George, as an adviser I often find the group insurance policies offered by the industry funds are more expensive than similar group insurance policies which are offered by retail funds- but I’m sure the higher cost doesn’t translate into a monetary benefit for the industry funds. The article is really comparing a group insurance policy to an individual insurance policy which provides greater coverage, and yes can pay an adviser commission. Have you thought about seeing an adviser that doesn’t accept commissions on insurances? One more point to consider I’ve witnessed first hand industry funds cancelling insurance policies without giving the member an opportunity to keep or replace first, and also not honouring insurance payouts because the member changed employers. One of these cases the industry fund continued to take insurance premiums for ~5 years after the member changed employer, before the claim which wasn’t paid because of the fine print. "

Josh Stewart 08:17 on 04 Aug 18

"No mention of the commissions an adviser can get from a retail fund but not an industry fund? How interesting. You would think that might be an important thing to mention."

George 22:05 on 03 Aug 18

"You mention "good quality retail funds", which makes me think there are some rubbish ones out there as well. I guess this is to be expected? Have to get an adviser to sort the wheat from the chaff?"

Suss 15:09 on 03 Aug 18

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