Undisclosed insurance premiums could be leading Australians to pay far more for insurance out of their super accounts than they need to, according to Chant West research.
“The differences in premiums between the cheapest and dearest funds can easily run into thousands of dollars a year,” said Chant West principal Warren Chant.
Although the focus tended to be on administration and investment fees, insurance premiums could dwarf all the other fees and costs put together, Chant said.
Almost all retail funds include a commission element in their premiums, which generally range from 20 to 30 per cent of the base premium, according to the Chant West report which analysed death and TPD premiums for 89 funds — 43 industry funds, 14 public sector funds and 32 retail funds.
In an example cited in the report, for the same member the highest premium could be 10 times the lowest premium at age 50 with the difference increasing to 20 times greater at age 60.
Differences like this could decrease a member’s final benefit by tens of thousands of dollars, according to the report.
“Most members wouldn’t have a clue whether the insurance premiums coming out of their account represent good value or not … because the level of disclosure in the whole area of insurance is so appalling,” Chant said.
The Chant West report recommended nine insurance disclosure standards that should apply to all super funds.
Included in the recommendations, premiums should be shown on a fund’s website gross of tax and based on current age. Income protection premiums should also be shown excluding stamp duty, insurance premiums should be separated from adviser commissions and examples should be given in the Product Disclosure Statement, the report stated.