Life insurance, income protection and TPD claims through Super funds can be slower

UPDATE 06 FEBRUARY 2025: AUSTRALIAN SUPER PROBED BY ASIC OVER DELAYED CLAIS PROCESSING AND PAYMENTS

An October 2024 study by Morningstar Australia found that almost half (45%) of Australians have less than $1,000 in the bank.

Similar research by comparison website Finder reached the same conclusion, citing high inflation, high interest rates, and the cost of living as significant contributing factors.

Objectively, $1,000 or less is not a lot of money to fall back on, especially in a moment or period of crisis such as the loss of income or the death of a family provider.

For many families, $1,000 would barely provide for a week.

And certainly, factors such as mortgage payments and remaining debts would be off the table.

Suffice it to say that the speed with which life insurance, income protection, or TPD can be accessed is essential for many Australian families.

A delay of months let alone more than a year would lead to crisis.

Unfortunately, for those with insurance through Super, this can be the experience. There are a few contributing reasons for this.

How retail insurance policies payout

When you have a direct, retail life insurance policy, a successful claim is paid either directly to you or your beneficiaries in the event of death.

You have the direct relationship with with life insurer.

How insurance through Super policies payout

If your life insurance is through your Super fund, the insurer will payout to the trustees of the Super fund.

The trustees must then determine if the conditions for release have been met and who should receive the funds.

Thus, inherently, insurances through Super - even if you have a retail policy through Super - are slower to payout.

Though there can be other delays

In the year ended June 2023, complaints to the Australian Financial Complaints Authority (AFCA) - the ombudsman of the Superannuation industry - regarding delays in releasing super to surviving beneficiaries jumped from 72 to 267 complaints.

On 1 July 2023, the voluntary Life Insurance Code of Practice came into effect, compelling life insurers (including life insurers who provide insurance through Super) to accelerate their claims process.

But as Investment Magazine points out, “voluntary codes clearly aren’t working” and there are ongoing calls from the broader financial industry to understand the cause of the delays.

Since 1 July 2023, complaints have grown with Super Consumers Australia saying that the delays are “systematic”.

ASIC takes Cbus to Federal Court over its delays

Of course, not all Super funds are as delayed as others, though in late 2024, ASIC put the Super funds on notice, launching legal action against Cbus for being too slow in processing millions of dollars in death and disability payments.

These delays left many families and beneficiaries in prolonged financial uncertainty. ASIC Deputy Chair Sarah Court said in a statement that the way claims are handled remains a “broader issue” for the industry.

As Natalie Peng, a Lecturer in Accounting at UoQ points out on the matter, “ASIC’s scrutiny of Cbus signals a deeper problem - the risk that some funds are prioritising administrative convenience and cost savings over timely management of claims.”

Conclusion

Life insurance through Super is a convenient - and sometimes cheaper - way to have coverage for life, disability and income protection.

First and foremost is to ensure you have sufficient coverage, something many Australians do not.

The second is to understand the claims process and understand that it could be delayed, even over and above what you might expect. By at least knowing the claims process, you’ll know your Super fund’s requirements in advance: medical assessments, proof of death, evidence of disability and other documentation.

Of course, if you are in the unfortunate positioning of needing to make a claim on your behalf or on behalf of someone else, Natalie Peng has some excellent advice: