What to and not to do when you are denied Life Insurance:
It's not a pleasant feeling to be 'denied' life insurance cover, yet it happens often. A common 'fix' is to apply for multiple superannuation funds with default life insurance cover to get the cover you desire - but this is not necessarily a good idea.
First off, before resorting to multiple policies, it's worthwhile reviewing why you might have been knocked back for cover. Here are the first three steps to take:
1) Find out why you were knocked back.
Sometimes you can be knocked back for something as simple as drinking too much coffee the day before you had a health test. Often if an applicant’s urine tests come back with any aspects 'outside normal ranges', they can be denied cover instantly, without further inquiry or It can be because the application was made too soon after a recent medical procedure or during standard a recovery period.
Other common reasons include:
- Occupation type
- Smoking habits
- Weight issues - obesity or high 'BMI'
- High blood glucose
- High cholesterol
- Mental illness
- HIV / AIDS
As an applicant for life cover you have a right to know why you were knocked back. It's worthwhile running the medical records used in the denied application past your doctor for a second opinion. You may be able to prove that the initial results were incorrect, or seek an updated report that shows you've recovered from a previous illness.
2) Work with your adviser
Not all insurers are the same and some have their own specialties or features.
Some insurers specialise in covering labourers for example, while others might mostly insure white-collar workers. Speak with your adviser to discuss and alternative provider who might be more suited to you.
3) Seek cover in your superannuation fund
Superannuation funds often provide insurance cover to their members by default. This means that the insurance cover is provided without taking medical histories ('underwriting') into account.
It's also possible to increase from the default insurance cover within the superannuation fund without medical questioning or underwriting - however this option varies between funds and often has thresholds. Seek out an adviser for guidance on this matter.
Life Cover Denied - Is One or More Superannuation’s Default Insurance Cover the Answer?
For those with a denied application, the generic insurance cover in superannuation without underwriting can seem to be the solution, but there are catches to look for:
1) Not enough cover:
An important point to note is that most insurance cover in superannuation funds is deemed too low for members, as described in Rice Warner's Underinsurance in Australia 2017 Report.
With systemic under-insurance in the superannuation industry, as stated on ASIC's MoneySmart website "You may opt for some cover through your super fund, and some cover directly from a life insurer, depending on the cost and the type of cover you need". We recommend seeking a proper needs analysis with an adviser.
2) Get Multiple Superannuation funds each with default insurance cover:
A common approach for those who have been denied cover is to jump on the superannuation default insurance bandwagon - or multiple wagons as the case may be. It seems logical that if you cannot get your own standalone insurance policy, then why not get enough default insurance covers through multiple superannuation funds to get the total cover you need?
The answer is the 'Sole Purpose Test' - The ATO states that the sole purpose of your superannuation fund is to provide for your retirement - not to pay for your insurance policies.
While it is possible to have multiple superannuation funds for the following reasons:
- Diversification of investment manager risks
- Access to specific investments or funds management teams
- Temporary transitioning from one fund to another
There could be issues at the time of claiming whether specific superannuation funds/accounts were opened for the sole purpose of investing, or a dual purpose of investing and gaining insurance cover.
3) Superannuation default Insurance cover is expensive:
Another point to consider is that multiple insurance policies are expensive.
When maintaining or managing multiple superannuation accounts, there are multiple sets of administration fees and it has been found by Omnium (Premiums as at 22nd March 2019) that the default cover in superannuation funds is not necessarily cheap, or even reasonably priced; in fact they can often be expensive.
Before applying for multiple superannuation funds, read the PDSs in full and seek professional assistance.