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How life insurance is purchased affects the payout – Sydney Morning Herald

Death benefit claims took one month, on average, to process through super funds, 1.7 months through advisers and 2.9 months if purchased directly from the insurer.

Death and TPD cover is provided for people who elect their super fund’s “default” investment option. It is usually no more than $100,000 or $200,000 for each, though it can be higher.

There is usually “automatic acceptance” for the default insurance cover, which means there is no medical examination, though there may be a medical history questionnaire.

A fund member may have to undertake a medical examination if they want more than the default level of cover, with a possibility they may be rejected for the extra cover.

Experts say there are reasons that explain the difference in insurance payout ratios inside super funds and policies purchased through advisers.

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Mark Kachor, managing director of researcher DEXX&R, says sums insured are generally much larger for those buying insurance through advisers than the typical cover provided by funds.

Larger claims are scrutinised more closely and there is usually a re-insurer involved to cover the extra risk, who also reviews the claims, which can also increase processing times, Kachor says.

He says a qualified financial adviser can be valuable for those with more complicated circumstances, such as small business owners or those with complex family arrangements.

However, Kachor says for smaller amounts of cover, buying insurance through super is usually cheaper but, for larger amounts, it is almost always less expensive if purchased via an adviser.

He says one of the key things to look at in a TPD policy – regardless of the channel it is accessed – is the definition of “disability”.

The best definition is when a claim is paid if a person cannot work in their current profession, rather than any for which you have the “education, training or experience”, Kachor says.

Not everyone needs to have death and TPD insurance – particularly those who are young and in good health without the responsibilities of a family.

Not having life insurance premiums coming out of a super fund account leaves more cash in the account to earn compounding returns and grow retirement savings.

More protections have come into effect to safeguard those who do not need insurance inside their super fund. They include those who become new default fund members and are under the age of 25 who no longer are provided with life insurance automatically. If they want the insurance they must elect to have it.

Life insurance is not just death and TPD but can include other types of cover, such as income protection, which pays out a portion of your income for a limited time if you are unable to work due to illness or accident.

With most funds, income protection insurance is provided only to those who choose to have it.

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Source: Google | Insurance News

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