The majority of superannuation funds have an insurance component, which comes in the form of Life, Total and Permanent Disability or Income Protection Cover. These covers are most commonly ‘Group’ covers which, as the name suggests, cover a group of people communally either with the same employer, in the same profession or with the same superannuation fund. While these covers are not individually tailored, most insurers offer an occupation classification that can alter some aspects of the cover.
There is often a misconception that your occupation classification defines your level of cover. While it can make a difference to the level of standard cover, the classification really only changes the cost of the insurance premiums. Group insurers quote their premiums for different occupation classifications by either having a different cost per unit or by altering the actual level of a unit.
It is this second method that gives people the feeling that the occupation classification defines a lower level cover as not everyone knows that insurance levels can be altered. Therefore while the level may be reduced you can apply to increase or decrease the level of cover. This means that the level of cover is really in your hands and the insurer will just charge differently for different classifications.
The comparison below illustrates the two common ways insurers quote premiums and how your occupation classification can affect the level of cover and the cost.
1. Changing cost per unit
|Value of a unit $150,000||Occ A||Occ B|
|Cost per unit||$130 p.a.||$78 p.a.|
2. Changing level of a unit
|Cost per unit $130 p.a.|
|Occ A||Occ B|
Method one (changing the cost per unit) results in decreased premiums when the occupation rating is changed from A to B. This represents changing from a default rating to a professional rating. In method two (changing the level of a unit) changing from occupation rating A to B does not alter the cost but increases the level of cover from $150,000 to $250,000. There is no difference in the cost of cover as $250,000 of cover would still cost $130 p.a. for both.
The difference is the way in which group insurer’s quote their units and prices with regards to occupation classifications.
As most funds come with a default level of cover, it is in everyone’s best interests to investigate what level they currently have and whether it is suitable. While it might not seem important, at the end of the day you are still paying for the premiums out of your superannuation assets so saving money through your classification can be greatly beneficial, especially in the long-term.
To find out more about your current cover and whether you could benefit from this review contact your superannuation fund or talk to a financial adviser about group cover options as well as more comprehensive retail cover.
This presentation article has been prepared by RSM Financial Services Australia Pty Ltd ABN 22 009 176 354, AFS Licence 238282. This article does not take into account your individual objectives, financial situation or needs. You should assess whether the information is appropriate for you and consider talking to a financial adviser before making an investment decision.