Claims, Mistakes and Official Sources
Life insurance and income protection mistakes that leave Australians uncovered
The common mistakes with life, TPD, trauma and income protection cover in Australia, from lapsed super cover to cancelling too early, with what each one costs.
The most expensive life insurance mistakes are not about choosing the wrong insurer. They are about losing cover without noticing (an inactive super account, a consolidation, a missed premium), holding cover whose definition will not fit your claim, and answering application questions carelessly. Each can turn years of premiums into a declined claim. The good news is that most are preventable with an hour's review once a year and before any change.
This guide is part of the claims and complaints guide. Examples are illustrative composites, not real cases.
1. Letting super cover lapse through inactivity
Cover in super is cancelled after 16 months with no contributions or rollovers unless you opt in to keep it. People on parental leave, taking a career break, moving overseas or between jobs, or working as contractors who are not paid super, are most exposed.
Prevention: Before a break, opt in to keep cover or make a small contribution. See the opt-in rules.
2. Consolidating super and losing the best cover
Rolling all your super into one fund saves fees, but the account you close may have held the only cover, or cover issued without health questions.
Prevention: Before rolling over, compare the cover in each account and, if needed, apply for equivalent cover in the destination fund first. Wait until it is accepted.
3. Cancelling the old policy before the new one is accepted
A new application can be declined, or accepted with an exclusion. If the old policy is already cancelled, you may end up with less cover, or none.
Prevention: Keep the old policy until you hold written acceptance of the new one, then cancel. Overlapping cover for a few weeks costs little.
4. Careless answers on the application
Leaving out a GP visit, a prescription or a specialist referral can give the insurer grounds to vary or avoid the policy within the first three years. See the duty to take reasonable care.
Prevention: Gather records before applying. When in doubt, disclose.
5. Relying on default cover that is far too low
Default death cover in super often falls well short of a family's needs, and many funds reduce it with age. A household with a $600,000 mortgage and $250,000 of default cover has a large gap.
Prevention: Do a needs calculation. See how much life cover do I need.
6. Choosing income protection on price alone
A 2-year benefit period or a long waiting period lowers the premium, but a serious illness or injury can outlast 2 years.
Illustrative cost: A 6-year absence at $8,000 a month with a 2-year benefit period leaves about $441,600 of income unreplaced, compared with about $189,600 with a to-age-65 benefit period. See choosing waiting and benefit periods.
7. Replacing an older income protection policy
Policies sold before October 2021 may include agreed value benefits or own-occupation cover to age 65 that new policies no longer offer. See the 2021 changes.
Prevention: Before replacing, compare definitions, not just premiums. Reduce cost on the existing policy, for example by lengthening the waiting period, if that is enough.
8. Over-insuring income protection
Under new policies the benefit is based on your income in the 12 months before a claim. If you insure $8,000 a month but earn less, you pay for a benefit you cannot receive.
Prevention: Review the insured benefit when your income falls.
9. Missing the tax deduction, or claiming the wrong premium
Income protection premiums paid outside super are generally deductible; life, TPD and trauma premiums are not, and super premiums cannot be claimed by you. See the tax deduction guide.
10. Forgetting beneficiaries and nominations
A super death benefit follows the fund's rules and your nomination. A lapsed binding nomination can mean the trustee decides who receives the money. A retail policy without a named beneficiary pays to your estate.
Prevention: Check nominations every year, and after marriage, separation or a new child.
11. Not claiming at all
People often do not realise they hold TPD or income protection in an old super account, or assume a claim will fail.
Prevention: Check every fund and claim. The insurer decides whether you meet the definition. See the claims guide.
12. Accepting a declined claim without question
Decisions can be wrong. Insurers must give reasons, and you can complain internally and then to AFCA for free. See AFCA complaints.
13. Ignoring offsets
Income protection is usually reduced by workers' compensation and other payments. See offsets.
The annual review in ten minutes
| Check | Where |
|---|---|
| All super accounts and cover active? | myGov, fund accounts |
| Cover amounts still match needs? | Your needs calculation |
| Premiums affordable for the long term? | Statements |
| Beneficiaries and nominations current? | Fund and insurer |
| Income protection benefit matches income? | Policy schedule |
| Any changes in job, health, pastimes to note? | Your records |
| Deduction claimed in the tax return? | Premium statement |
Use the cover review checklist.
Frequently asked questions
What should I do if my super cover has already lapsed?
Contact the fund immediately. Some funds allow reinstatement within a limited window on request; otherwise, apply for new cover.
Is it a mistake to hold cover in more than one super fund?
Not necessarily, if you need the total cover. It is a mistake if you are paying for duplicate cover you do not need.
Is cancelling insurance in super always a bad idea?
No. If you have no dependants or debts, or hold better retail cover, cancelling may make sense. Do it deliberately, not by accident.
Sources
- Moneysmart — reviewing life insurance and insurance in super
- ATO — finding lost and multiple super accounts
- AFCA — complaints about insurers and super funds
- ASIC — reports on life insurance and insurance in super
