MySuper changes – what does it mean for disability insurance cover

MySuper is the new default superannuation provisions which include conditions designed to broaden the scope of disability insurance offered by superannuation funds. The reforms have been introduced in stages. The provisions regarding disability insurance largely commenced on 1 January 2014.

Standard definition for TPD claims

There is now a standard default insurance definition for total and permanent disablement (TPD) claims which is in line with the definition in Superannuation legislation.  This was done to avoid the situation where an insurer may pay a TPD benefit to a fund but the fund would not release it because of different conditions of release applying.

TPD and Life Insurance are now compulsory

Life insurance and TPD insurance is now compulsory for members on an “opt out” basis.  If you join a super fund from 1 January 2014 or previously had no TPD insurance as part of your fund and you do nothing about your insurance you will be covered to a default level.  Members can however opt out of the coverage to avoid paying premiums for the insurance. Members need to be aware that funds are allowed to prescribe certain minimum conditions before they are covered, for example by way of the number of hours worked per week, the level of contributions received from an employer or the requirement of a minimum balance to be held.

If you are a MySuper member and your working conditions change from time to time, it is important to keep your super fund up to date with your current conditions.  If for example your default coverage is based on hours worked and you do not initially meet that threshold but then subsequently increase your hours, the super fund needs to be told so premiums can start being paid and coverage commenced.

Default cover is traditionally low however a super fund must offer coverage over and above a member’s account balance which they also get to access if they are TPD.  If a super fund cannot get an insurer to provide affordable “opt out” insurance coverage then the super fund must implement compulsory coverage for all members.

Funds that self-insure TPD benefits will no longer be able to do that after a transition period, with the exception of defined benefit funds.  This is to avoid the risk of having to pay any shortfall on claims out of other member’s funds and to ensure those who are insuring members are properly regulated.