Keep TPD opt-out, says FPA

Total and permanent disability (TPD) insurance should remain opt-out for young or low-balance superannuation fund members, according to the Financial Planning Association (FPA).

The FPA has used its submission to the Treasury responding to the exposure draft of the Government’s Treasury Laws Amendment (Protecting Superannuation) Bill 2018 to warn of the unintended consequences likely to flow from the legislation.

In doing so, it said that it was an indisputable fact that Australia generally had an underinsurance issue which was in some way mitigated by the default superannuation system.

“While young Australians may not have debt and dependence to the same level as older Australians, there are a number of important reasons some level of insurance cover is beneficial for younger workers,” the FPA submission said.

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It said that, in particular, the FPA was concerned that the importance of TPD insurance cover was being discounted by the Government’s approach.

The FPA submission said that TPD cover was particularly important for the following reasons:

● While younger people may not have dependents, if they have an accident or can’t work,

government allowances may not be sufficient to support them and provide the care they

require for a decent quality of life,

● Provide support for parents or carers,

● May have some level of personal debt,

● May have commenced a small business with liabilities.

“The FPA also notes that insurance cover gets more difficult to obtain as you become older, since people are more prone to exclusions loadings or not qualifying as they get older,” it said. “While we acknowledge the intent of this legislation is not to prevent insurance from being taken up by superannuants in these circumstances (rather to reduce the impact of erosion by insurance premiums) it will only exacerbate the underinsurance of Australians.”

“Further, disengaged members may be synonymous with members who lack financial awareness, and are therefore naïve to their financial needs and the benefits of the auto-cover insurance provided through superannuation,” the submission said. “Hence, we recommend that TPD insurance should remain as an opt-out policy to ensure protection for younger superannuants from unforeseen consequences.”