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It is quite conceivable that you won’t know the difference between a group insurance policy and a retail insurance policy. Or even the definition of each. Let me outline it for you and highlight the differences and the closing gap on premiums.
Group insurance refers to insurance where an employer or trustee of a superannuation fund purchases an insurance policy to provide cover for a group of employees or superannuation fund members (e.g. default insurance cover within super funds), with the insured amounts determined by a formula. The cover is automatically accepted up to certain limits without underwriting as there are rules that apply to the whole group, so premiums tend to be lower.
Retail insurance refers to insurance between the life insured and the insurer which is generally channelled through financial advisers. As this type of insurance is not automatically accepted, it is generally subject to medical and financial underwriting where the insurer assesses the applicant’s personal and family medical history as well as income.
While group insurance has traditionally had lesser premiums than retail insurance policies, in more recent years we have noticed the difference in premiums reducing. Sometimes retail insurance premiums are more cost-effective than group insurance premiums.
Quality: Group insurance does not provide as many benefits as retail insurance products. One crucial example of this is Own Occupation TPD cover which cannot be owned via superannuation, therefore group TPD policies are limited to the Any Occupation or Activities of Daily Living (ADL) definitions. Own Occupation TPD can generally only be obtained through retail insurance. Furthermore, most group Income Protection policies have a strict definition that only considers your ability to perform income-producing duties. Retail policies on the other hand generally have a more generous three-tier definition that considers duties performed, hours worked and income lost, which makes it easier to make a successful claim.
Renewability: Group insurance contract terms are subject to negotiation between the employer/superannuation provider and the insurer and can change at any time and often the quality of the policy is reduced. A common example is changing TPD definitions, therefore making it more difficult to make a successful TPD claim. In contrast, a retail insurance policy contract is generally ‘guaranteed renewable’ and therefore can only provide additional or upgraded benefits while your policy is in force. You will never see a downgrade in your retail policy’s benefits once in force.
Premium Types: Group insurance generally only offer age-based/unitised or stepped premiums, while retail insurance policies allow you to select between stepped and level premiums or a hybrid of the two. This provides more flexibility for short-term or long-term insurance needs.
Indexation: Further to the above point regarding premium types, the age-based or unitised cover offered through group insurance schemes tends to reduce as you age, while retail policies allow you to index or increase your sum insured each year to keep pace with inflation and the rising cost of living. Retail Income Protection policies also allow you to have an ‘Increasing Claims’ option, where your monthly benefit will index with inflation if you are on claim for more than a year.
Limited cover: In group insurance, the sum insured you can obtain is often less than what you can obtain through retail insurers. Default group insurance also is not specific to your individual circumstances and may be subject to eligibility requirements.
Limited ownership options: Most group insurance is ‘owned’ by the employer or superannuation trustee, while retail insurance provides multiple ownership options including individual, joint, company, Self-Managed Superannuation Fund, and superannuation trustee options. Retail insurance offers the ability to have ‘super linked Life, TPD and Income Protection policies, where the bulk of the premium is funded through partial superannuation rollovers while also providing a linked personally owned insurance policy. This allows someone to also have a higher quality policy outside of the super environment while reducing the out-of-pocket personal cost.
Maintaining insurance: If you change super funds, your contributions end, or your super account becomes inactive, your group insurance may be cancelled, and you could end up with no insurance. Retail insurance policies are not generally affected by these issues as you can easily change the super fund for enduring rollover authorities.
Please do not hesitate to contact the Risk & Insurance team at Hewison Private Wealth if you have any questions regarding personal insurance. Contact us HERE.
Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.