Income insurance premiums surge 220 per cent
A major provider of income protection insurance is putting hundreds of thousands of workers in a no-win situation - accept big cuts to benefits or pay up to an "astonishing" 220 per cent extra to maintain their coverage.
Even though its profits are rising, TAL Life is also hiking death cover by as much as 80 per cent, creating a double whammy for many people.
Under the changes to income protection, a worker whose policy pays an annual benefit of $30,000 could have a premium of $2768 taken from their superannuation in 2020-21, versus $861 this financial year.
That's a jump of 222 per cent, gobbling up more than three-quarters of the employer contributions to that worker's super account.
IOOF, which is one of the many large super fund managers that uses TAL for income protection insurance, has written to fund members warning of a "material erosion … of balances over time" if they choose to maintain their level of coverage.
To avoid this material erosion, the fund will automatically reduce the benefits payable under the income protection policy.
"From 1 July, 2020, the claim benefit period for your default income protection will change from to age 65 years to 5 years and the waiting period will change from 30 days to 60 days," the IOOF letter, seen by The Daily Telegraph, says.
That means the worker would only get payments for a handful of years instead of potentially decades, depending on their age.
"The combined effect of these changes will be a premium reduction for most members," the letter says.
But members can "opt in" to keeping their coverage the same, which would mean paying the much higher premium.
Meanwhile, the cost of $800,000 of cover for death or total and permanent disability will rise by 83 per cent to $981, up from $536.
IOOF intends to impose this increase rather than reduce coverage in the way it is for income protection policies.
Consumer Action Law Centre CEO Gerard Brody said TAL's income protection insurance price increase was "astonishing".
"And being given an option of more affordable insurance by substantially downgrading your cover doesn't seem fair either," Mr Brody said.
"This leaves people stuck between a rock and a hard place."
TAL told The Telegraph that recent legislative changes were part of the reason for the increase. Workers under 25, who are unlikely to claim, can no longer be given insurance by default. Ditto for accounts containing less than $6000.
TAL also said claims had risen, along with the cost of reinsurance used to spread risk.
That hasn't stopped the company's profits from rising.
A presentation to investors last month by its parent company, Japan's Dai-ichi Life, shows TAL's underlying earnings rose to $188 million in the year to March 31, 2020, up 11 per cent on the previous 12 months.
IOOF said its insurer's decision was "extremely regrettable, particularly in the current environment".
"We will be undertaking a review of our insurance provider in the coming year," IOOF said.
Originally published as Income insurance premiums surge 220 per cent