Income protection insurance in super
Risk insurances need to be properly structured and insurers often need to be handled assertively.
You may have come across this heart-breaking (and very frustrating) story recently. The story involves a father whose one year old daughter needs a liver transplant. Being so young, the liver does not need to be very big and, thanks to the wonder of our age, she is able to make use of a small piece of her father’s liver.
Unsurprisingly, Dad is more than happy to oblige. But having part of your liver removed is not a small procedure, and he needs to take three months off work. He has an income protection policy which should kick in after 30 days, and he was anticipating receiving a payment of 75% of his income for the second and third months that he is off work.
But there is a hitch. His income protection is held through super, which means that any payment on the policy constitutes a withdrawal of benefits from the super fund. And the fine print on the policy says that he cannot access such funds in cases of ‘elective surgery.’
Which, in strict legal terms, this surgery is. The strict, narrow interpretation of elective surgery is surgery that will not save your life. In this case, there would be no harm to the Dad if he did not have the surgery. The transplant will save his daughter’s life, not his.
This is, of course, poor form from the insurer. Few people would see anything elective about a parent undergoing surgery that saves their child’s life. But it also underscores the importance of having your risk insurances properly organised. Super can be a good source of finance for some forms of risk insurance, but not for all of them. It is for precisely this reason that it is important to speak to an adviser before proceeding with risk insurances.
