Same insurance cover, different price: Research

Group insurance remains cost effective and beneficial for members, but there's significant disparity among premium rates and the level of cover superannuation funds are offering, latest Rainmaker research reveals.

The study of 15,000 insurance deals offered through 220 superannuation products found life insurance cover on average costs members about $3 per week.

Young members pay half this amount, while older members pay more - an average of $3.70 per week.

Insurance cover also varies on average from $150,000 for members under 20 years old, down to $28,000 for members in their 60s.

Rainmaker found members tended to pay different premiums for the same level of cover.

Rainmaker head of superannuation research Stephen Fay said the significant variation depends on the profile of the fund membership and the deal negotiated directly by each super fund with their insurer.

With variation in overall cover provided, premium rates and weekly cost of cover, there is opportunity to choose an insurance that best fits, Fay said.

"Some key comparisons have the potential to save members and their family thousands of dollars in annual insurance premiums," he said.

With higher risk occupations, premiums also differed. A 45-year-old member can pay as little as 87 cents and up to $26.40 per week - almost 30 times more.

For a 45-year-old member working in a low-risk occupation, Fay said the median premium amount for standard insurance cover is $3.76 per week, while the most expensive super fund charges $11.78.

The cheapest funds charge as little as $0.48 per week - a staggering 25-times less, he said.

Fay added the premium prices super fund members pay is also driven by their level of risk.

For example, about 50% of super funds vary insurance cover and premium prices according to the type of job or occupation in which the member is employed. About 30% of funds vary insurance cover based on the gender of each member.

"Super fund members in higher risk jobs will on average pay twice as much for their insurance cover as members in lower risk jobs," Fay said.

But even within these risk groupings, Fay said prices can wildly vary.

"For a 25-year-old super fund member with standard life insurance, their cover could range from $50,000 to over $600,000 and their weekly premium costs could range from $0.45 to $7.80," he said.

The Productivity Commission said it will look into default life insurance as part improving the superannuation system.

Cbus told the recent Productivity Commission hearings the proposal to create a best-in-show list of default superannuation funds shouldn't overlook the unique insurance needs of members, particularly those in high-risk jobs.

Additionally, Rainmaker found premium rates for group insurance have increased in recent years. One important note about this trend is that super funds change the terms and conditions of insurance policies, which in turn influences premium movement.

For example, in concert with their insurers there has been a convergence on a tight policy condition that applies to Total and Permanent Disability insurance that is often bundled with death insurance.

In the past, to claim on these policies many super fund members who had been severely injured or who have contracted a major illness would only have to prove that they can no longer perform their regular job. But in most current TPD policies, to successfully claim against these policies they will now have to prove they can no longer perform any job aligned to education and experience.

Furthermore some funds require far more involvement in rehabilitation process and continual disclosure.

Fay said: "While there is general consistency across many super funds' group insurance policies, there still exist some important differences that impact the member's ability to claim upon the policy. This is an important factor in addition to the price of the cover."

Read more: InsuranceSuperannuationRainmakerResearchlife insuranceProductivity CommissionCbusDeathStephen FayTPD
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