Alex

We acknowledge that we are recording this podcast from the lands of the Gadigal people of the Eora nation. We pay our respects to Elders past, present and emerging and celebrate the diversity of Aboriginal and Torres Strait Islander peoples and their ongoing connection to land and waters throughout Australia

Ange

Welcome to super simple chats, Rest’s very first podcast. I’m Ange..

Alex

And I’m Alex

Ange

And we will be speaking to industry experts about all things super.

Matt

Wait, what the hell is contributions as well?

Ange

I didn’t realise until recently, that super is invested, I thought it was like a savings account

Sarah

I’m not sure it’s helpful to talk about specific numbers, but it’s a lot less than a million dollars.

Person

This is actually really important to talk about, because I don’t want to miss out on those things

Ange

Trying to make it understandable and relatable for every day Aussies.

Alex

After all, it’s one of the biggest assets you’ll ever have.

Ange

Now this wouldn’t be a financial podcast, if we didn’t start by mentioning that the information discussed is general only and doesn't take into account your own financial situation, needs or objectives. This information and the relevant products are issued by Retail Employees Superannuation Pty Ltd. Before deciding to join or stay, consider the relevant Product Disclosure Statement and Target Market Determination at rest.com.au/pds and whether it is appropriate for you. While we have endeavoured to ensure the accuracy and reliability of the information provided, there may be inadvertent errors or omissions. Before acting on any advice, we recommend you speak with a financial adviser.

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Ange

So most people think of super as a savings account, and what they don't realise is that there's actually a lot more to it. So, for example, many Aussies don't realise that they can access insurance through super.

So, joining us today is Bart from Rest. He's going to be giving us a bit of a 101 on insurance through super. So thank you for joining us today.

Bart

No problem. Thanks for having me. Hello, Ange, hello, Alex.

Alex

Hey, how you going?

Now, when I think about insurance, I typically think of, you know, health insurance. Car insurance. Super doesn't really come to mind. So if we can start from the very beginning, what insurances are available through your super.

Bart

Yeah. Of course. So I think many people know different types of insurances and they have different types in their life. And a few that you just mentioned then: car insurance, home and contents insurance. So with that type of insurance what you're doing is you're insuring a thing.

Whereas the insurance inside superannuation, and there's a couple of types of will go through, is about ensuring a human being. So really important. So if you want to go through the three that you can get inside.

Alex

Oh yes please go.

Bart

So the first one's really easy and probably the most well known. That's life insurance. And in life where either alive or we're not.

And if you are not alive, the purpose of life insurance that is there to provide, a lump sum payment to people that you may be leaving behind. And the purpose of that is to cover things like debt that you may be leaving behind in your life. And then also looking to offset perhaps a loss of income that you would have had, had that circumstance not taken place at.

The second type of insurance is called TPD. So TPD stands for total and permanent disability. So this is worst case scenario. So this is when you are disabled to a point where you will no longer be part of the workforce. So really terrible situations. And again it's a lump sum payment designed to cover things like debt that you might have in your life, as well as if you think of someone being disabled to a point where they may need to make modifications around the home.

So be that having to be in a wheelchair or needing other assistance than that that capital that TPD insurance provides can help fund some of that. And then lastly, the third type is called income protection. Now sometimes it's referred to as salary continuance insurance. They're interchangeable that the exact same thing. And with income protection what you're doing is you're protecting your income.

So you are insuring yourself or your ability to be able to earn an income. Now, income protection will cover you for any injury or illness that stops you from working, and it's designed to replace that income while you're not working. And there's a few technical aspects to it, which I'm sure we’ll break down in this chat.

Ange

Just on that, because I've heard of people taking out workers comp, for example, if they can't go to work. What's the difference between something like IP or income protection versus worker's compensation? And is there like, can you use one and not the other, or can you claim both or what's the kind of go with that.

Bart

Yeah. So they can be some interplay between the two. So work cover is a type of cover that an employer would take out to cover their workforce while they're on site. So while they're in the workplace now, if an individual was to hurt themselves in the workplace, their work cover would typically cover that. And it'll look to provide a financial benefit to the individual to help out with costs and other things that might be associated with that injury.

Ange

Yeah. Got it.

Bart

Now, the difference between that and income protection is income protection is taken out by the individual. And income protection will cover you for not only while you're at work, but all other times in your life as well. With work cover, you're only covering for injuries. With income protection, you're covered for injury or illness. So it could be as simple as falling over and breaking your leg and not being able to work as a result of that.

Or it might be if you were to say, get cancer or have a heart attack and be unable to work because of that, that illness, then that's when income protection can, can cover the individual.

Ange

I was actually reading an interesting member story the other day about a nurse who was in a situation where she injured herself outside of work. She broke her leg, and she wasn't able to work, given the nature of having to be on her feet in her, in her type of work. And she didn't know she had income protection, and she was a little bit financially stressed at the time. And someone asked her there, like, oh, have you checked with your super fund to see if you've got income protection? And she's like, what's that? So, she called up Rest. And lucky for her, she did have income protection and she was covered and put in the claim, got the claim paid out. Essentially. And that let her essentially recover and have that financial stability. And I guess what we don't realise is, you know, a lot of Aussies don't know that they've got this cover.

So I want to I was hoping that maybe you could explain what the purpose of insurance is, and some of the practical reasons why someone might take out insurance through super.

Bart

Yeah. Of course. So the example that you just provided about the lady not knowing she had insurance and finding out after the fact, that's a story well told.

And the wonderful thing about superannuation is it does have the ability to provide insurance to the individuals. Now, anyone listening to this would want to double check with their super fund, whether they're with Rest or someone else, because it doesn't come automatically with your account from day one. Now we can sort of talk through this, but there has been a change in legislation called putting member's interest first, or PMIF as we call it, in the industry.

And one of the components was to look at, I guess the reason for having insurance inside superannuation and to try and set some boundaries around, naturally the insurance comes at a cost and that costs can erode someone's retirement savings, particularly for younger people, which is what the legislation was looking to address. So what the regulator didn't want happening and what was happening in some instances is that a young 18 year old was getting a superannuation account, all very exciting. They might get a contribution from their employer for $20, which is fantastic, but then they'd lose half of that to pay an insurance premium. And so it wasn't giving them the best start to their retirement journey. So the rules that are in place now is that insurance is not automatically included. You have to jump two hurdles before the super fund will provide it if they provide it.

The first is that you have to be over the age of 25 years old, and the second is that you have to have a balance larger than $6,000.

Ange

So quick, quick one on that. So you said that you have to be over 25. Can someone under 25 choose to take out insurance? But it just doesn't automatically kick in.

Bart

Absolutely. It just doesn't automatically kick in. And I don't know too many 20 year olds that walk around thinking about life insurance in super are desperate to line up and put it into…

Ange

Really? They don't really?

Bart

They should. And this is kind of the purpose of our chat because when you like, you asked me before the purpose of insurance, why would someone take out insurance with any type of insurance, whether it's car insurance, home contents insurance, or life insurance?

Really what you're doing is you adjust your hedging risk. So you're saying to the insurer, I have a risk with this thing or with myself, and I'm concerned about it. And rather than self insuring and having to absorb that risk, can I give you some money and you'll take on some of that risk for me. So the example of a young person now, someone might have recently bought a home or they might have taken out debt to buy another asset.

They may have recently, started a family, got married. So they're starting to think about a time in their life when it's not just about them. Because I could argue that insurance isn't really about you, it's about other people. So life insurance is not for the individual who has the life insurance. It's about and it's about providing financial support to those that you may be leaving behind.

Now, a young person, and we touched on before the legislation about a young person, perhaps 20 year olds that think about it. I mean, I could easily put forward that when you're 20 years old, you have more long term risk in your life than, say, a 50 year old. Because if you think of the timeline of your earning potential, it's all ahead of you.

If you think of maybe your debt might be at a level where you can't service it. So there's many factors why a young person would look at insurance, but I think what I've noticed is that it's not really an age when people look at insurance. It's more a moment in their life, and it's a moment in their life where they reflect and they think about others and they do. You know, life starts to get a little bit real. And so that's typically the moment they'll start thinking about, life insurance or TPD or income protection.

Ange

I think it's really interesting that you sort of mentioned that, like normally when we think about insurance and risk, particularly around health, we sort of instantly go to the older audience. The older you get, the more likely that you might have some health problems, etcetera. But actually, to your point, when you're younger and your mortgage might be bigger and you've got young children that you're supporting, that's actually the time in your life where you probably would need to be protected by the sounds of it.

Bart

Yeah, that's exactly right. And the way insurance works inside, well, all life insurance works, whether it's inside or outside of superannuation, is, as you mentioned, the older we get, we all get one step closer to the grave and the chance of things going wrong, becomes more likely.

So when you're young and healthy, statistically, the insurance is cheaper because you are less risk to the insurer because it is less likely, statistically, that you would claim.

Alex

Now, does the type of work you do or could do affect your insurance? So say, if I'm writing on a laptop all day and I suddenly can't use my wrists, would that play into it?

Or is it that you can't work any occupation at all.

Bart

For TPD insurance, you mean?

Alex

Yes, or income protection

Bart

Yes so both of those type of covers are disability covers. So they're looking at injuries or illnesses. Yes. You're right. So your occupation does play a part. Now inside of superannuation, it's probably less prevalent than what it is outside of superannuation.

And the reason I say that is that typically insurance inside superannuation is what we call group insurance. What that means is that you're not typically underwritten if you're just taking insurance that the super fund gives you. So you're given this insurance and you haven't been underwritten. So they haven't asked what do you do for work. You know, do you do risky activities on the weekend? What's your health history like? Do you smoke? You're not getting asked questions. So you're just going into a plan. You're in the swim with everyone else. So it's a group policy. Now, if you were to consider the same type of insurance outside of, superannuation, typically you would go through an underwriting process.

And what they're trying to do there is measure your risk as an individual. So what we do for work plays a big part. Now I work in an office. The chances of me hurting myself at the office, I don't know, a paper cut, light falls out of the ceiling, hits me on the head. Not really likely. So I’m less risk.

Ange

You don’t get wrist cramps every time you write?

Bart

Actually, I do, so I'm less risk to an insurer’s eyes from a work aspect. Whereas, you know, if you think if I was working on a construction site, working high rise, risks are more prevalent chances of me hurting myself are more likely, so potentially I'd have to pay more to place that risk with the insurer.

Ange

So we went out and spoke to some Aussies about this.

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Sinem

Do you ever get worried about potentially being injured and not being able to work?

Woman 1

I haven't really thought about it too much. I have a desk job, so at the moment I don't really think about that too much. But yeah, I guess it is probably something I should think about.

Woman 2

I have never worried about that.

Sinem

Do you know whether you have insurance in your super so that you don't have to worry about that?

Man 1

I know that I've got it. And it covers me for, death, disability…

Man 2

…for any loss of life, and I think there is some insurance for the medical emergencies.

Woman 1

I know a little bit about it, but probably not as much as I should.

Sinem

Do you know whether you're covered?

Woman 3

I don't actually. I don't know. You have opened up a new world for me.

Sinem

Back to you Ange.

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Ange

So slightly aligned to what we were talking about. But I read somewhere that about 4 million Aussies have multiple super accounts. In fact, it was the ATO that said this 4 million Aussies have multiple super accounts. What happens if someone wants to close one of their super accounts and can this affect their insurance coverage?

Bart

Yes. Doing my role, I'm often out, so I work closely with employers who contribute to Rest. And so I'll often go out in the workplace and I'll talk to members, Rest members.

And one of the first things I'll ask him is, are you sure you only have one account? Is it just Rest? Are there others because you can. On the Rest app you can find out really easily. Or you can do it through myGov quite simply as well. And the, the most I've seen is 13 accounts.

Ange + Alex

Ooh. Unlucky number.

Bart

I had one of them in front of me pull it up. They had 13 different accounts. Now, the reason why you may not want more than one superannuation fund, and there can be reasons why you might want more than one, but one reason would be you're doubling up on fees, and you could probably put insurance premiums under the banner of fees in that regard as well.

So naturally, if I've got two superannuation funds, accounts, I might be paying two sets of administration fees, which is really inefficient because you could do it with one. Same with your investment costs. You're doubling up on that and then like you mentioned Ange, insurance premiums. Now again, you would have to double check. Not every super fund provides insurance. So it doesn't mean you automatically have insurance if you have, a superannuation account. But you need to double check that. Now, if you've got a double up of insurances because you've got more than one account, there's a double up in cost in the insurance premiums that you're paying. And where this is really important is for income protection insurance.

So for income protection insurance typically, and there's a little bit of movement between insurers and different policies. But typically you're allowed to insure up to 75% of your income. So if you earn 100,000 bucks a year. You can insure up to $75,000 a year typically. Now if you have two policies you can't double dip, so you can't, you wouldn't be able to claim on two policies if the total of their benefit payments were to be more than what your pre-disability, or 75% of your pre disability income is.

So effectively you would be paying for something that you wouldn't be able to use.

Ange

You could only essentially use one, and really, you'd be picking the one that's going to pay you the most.

Bart

Perhaps. Yeah perhaps.

Ange

What about on the flip side? So I have actually spoken to someone who has chosen to create two super accounts simply because one of their accounts was for their insurance and the other one had better fees. So why would someone do that? Like, I'm just trying to wrap my head around why some would want to have two super accounts to keep an insurance open.

Bart

Yeah. That's right. So we mentioned before underwriting. So, if you were to take out a policy outside of superannuation, typically you have to go through underwriting and they're going to ask you all about your health and your lifestyle and assess you as an individual and how risky you are to them. And then that will be commensurate to how much you have to pay for your insurance. So if I was if I started out and I had a Rest account and that came with insurance as part of it, and I didn't go through underwriting, so I didn't have to disclose any pre disability illnesses or injuries that I may have.

And then life goes on and I've put on weight and I maybe, you know, drink too many beers on the weekend and I stop exercising and you know I might have sort of more of a prevalence to some, some illnesses. So if I were to go through underwriting at that point, the insurer might say, one, you're going to have to pay a lot of money here for us to take you on is a risk, but they also might exclude things. So they might. If I walked in there and I'd broken my back previously, they might say, well, we're going to put a back exclusion on your policy so you can claim on if you were to hurt your back again. Whereas the insurance that I hold inside superannuation, I haven't gone through that process. So it may be that I would keep an account open for the purpose of holding that insurance.

Ange

That makes that makes sense now.

Alex

It's so interesting because before this episode, I was looking at the ASIC money smart, was it the life insurance claims comparison tool? And it actually showed at the time of recording that, your payout likelihood can be better if you go with insurance through super.

Bart

I don't know about that.

Ange

Ooh controversial

Bart

But I will say this, I will say this. So prior to working at Rest, I worked as a financial advisor and, I would spend a lot of my days, helping people protect themselves or protect their assets through life insurance and business owners. And in my experience, the insurers really approach claim payouts with the right intention that that's all I've ever experienced. So I know insurance, you know, I can come with connotations that they're trying to rip people off or, you know, take their money and then not pay it at claim time. But in my experience, all the claims that I've seen have always been assessed fairly, whether that is inside of superannuation or outside of superannuation. Often they're the same insurers.

Often you can get, you know, the same insurer through, superannuation. And if you were to take it outside, it might be that you're going through the same insurer as well.

Alex

Look, I'm not brave enough to argue with ASIC, so I'm glad someone is (laughter)

Ange

What I'd like to know is why do super funds offer insurance? What's in it for them?

Bart

From a financial point of view, there's nothing in it for them. So we partner with, one of Australia's largest insurers to provide insurance to our members because we believe in it, there is no financial incentive for us. We are an industry fund, we’re a profit to member fund. We don't make a profit. So we certainly do to look to financially benefit from having insurance or doing a deal in the background doesn't happen. So there's no financial benefit for us, but we truly believe in it.

And one of the great things about our income protection policy that we offer through super is that it comes with a five year benefit period, whereas often there can be a benefit period less than that. So two years or less number super funds don't offer insurance at all. And also casuals and part time workers can take out income protection policy with Rest as well. Now the history of that is our history is steeped in retail. So read the retail industry and typically retail workers are a more casualised workforce and a typical retail worker who is working part time or casually find it really hard to get income protection outside of superannuation.

Ange

Why is that?

Bart

Well, it's a tough job. You're on your feet all day, you're bending, you're bending up and down to pick up things. You know, if you think of. So some of the hardware stores that you go into, people up and down ladders, it's a demanding job. And so, so in addition to that, it would be pretty tough for them to get an income protection policy with a five year benefit period as well.

So that's a that's sort of a wonderful thing that we provide to all our members, if that, you know, they do want to have insurance.

Ange

That's great. That's really good to hear.

Alex

Now jumping to something slightly different, we've talked a lot today about your physical health as it relates to insurance through super. But what about mental health like can super through insurance support you if you were dealing with a mental health crisis as opposed to a physical health crisis?

Bart

Absolutely. So with income protection and with TPD insurance, what we like mentioned before, it will cover you for any injury or illness that stops you from working.

Alex

Okay, okay.

Bart

Now the prevalence of mental health claims has gone up, quite a lot over the last number of years. So it's a common claim. Now I might be making this up, but I think about 1 in 4 income protection claims are for mental health reasons, which often surprises people.

The fact that they can even claim on it that mental health Is an illness. And if that illness stops you from working, then income protection can cover you for that.

Alex

Amazing. Well, thank you for sharing that because I think that's one that would actually affect of a lot of Aussies. But you don't often connect mental health physical health and through insurance.

Bart

Yeah, absolutely.

Ange

And I guess going to the point before we said, you know, older the audiences are more likely to take out the health claims. But that younger audience, you know, that's where maybe they would see the benefit younger in their lives earlier on in their lives, like, oh, okay. Well, mental health might be a space that I should be thinking about insuring myself on.

Bart

So yeah, that's and it gives you peace of mind. Right. And that's what insurance does. Insurance is just a plan B, you know, like life happens. No one no one wants to or plans to become ill or injured. But it happens sometimes. And, you know, if you think about, I guess, having the, the, the financial support to help you through those times is huge.

Because, you know, if you were to injure yourself seriously not only have to go through all that, then not have money to support yourself and not have an income coming through to support yourself, that would be terrible. So insurance can play a really important part in, you know, getting people back to work.

Alex

Well, that's great to know, but are there any disadvantages to having insurance through super.

Bart

Yeah, there can be, and I guess so we spoke before about group insurance. So once you cross those two hurdles, being over 25, balance over $6,000 insurance then kicks in. But we haven't asked anyone about their situation, their personal situation. So we've got 2 million members, about a third of those or close to 40% have insurance. We haven't asked those almost 1 million people, can you tell me about how much debt you have in your life? Are you married? How much do you earn, there's so many things, so many factors that go into determining the right level of cover.

So if you've got the default amount of cover, you might be under-insured, you might be over insured, you might not need insurance, but you don't know.

Ange

And how do you check.

Bart

You can check, at Rest you can check on your app. That'll tell you how much insurance you've got. But we've also got two other wonderful tools that people could take advantage of versus financial advice. Speaking to a human being. So Rest is pretty unique where we have financial advisors, they're all based here in Sydney. They're all wonderful people, I know them personally, they sit on our floor, and the purpose of their role is to help Rest members. Now that could be through picking the right investment, that could be having the right contribution strategy, that could be planning for retirement.

But insurance plays a part there as well. So they can run through a questionnaire with a Rest member, and that will help them determine the levels of cover that they should have based on things like debt and other assets that they have in their life. And then the individual can go and either take out more insurance or reduce it down to, a lower level or just, you know, do some tweaks to make it more individual for them.

Now that comes at, that service of insurance advice for Rest members comes at no additional cost to the member. Now, if you didn't want to speak to a human being…

Ange

I was just about to ask. For those of us who are from the generation who do like to pick up the phone…

Bart

Digital advice. So Rest is incredible at digital advice, so you can go through the same process, but rather than being on the phone talking to a human being, you’re prompted questions through our digital advice, process, and it's going to ask you questions like about your situation. Are you married? What is the value of your assets? How much debt do you have? How much income would you like to provide for someone, or allow for if you were to pass away? So at the end of that process, you get a suggested level of cover that you should have as well. And then you can go and put that in force and go through the process.

Ange

Great.

Bart

And look, if nothing else, a Rest member could use it just for peace of mind. They could go through that process just for peace of mind. Maybe the level of cover that they've got now. It's really good. They go through that process and find out. So I really encourage everyone just to consider it.

Ange

Give it a go.

Alex

So and if you aren't a Rest member, how can you find out about your, superannuation insurance?

Bart

So I would say get in contact with your superannuation fund directly, whether that's digitally through an app that they might provide or pick up the phone and give them a call. That's the best way to ask. Some people think that, you can see your level of cover through myGov, your insurance. So if you go into myGov, it'll tell you what superannuation funds you have. And it can also tell you if you have insurance. Yes or no?

Alex/Ange

Oh I didn't know that.

Bart

But it won't tell you how much insurance you've got or what type of insurance you've got. So always best just to speak to your super fund directly, right.

Alex

Well, thank you so much for joining us today, Bart. I know this wasn't the easiest topic, and it's one that I mean, I personally didn't know that much about until I even turned 25 and would consider it. So I really appreciate you breaking it down for us.

Bart

Thanks so much. It was lovely chatting to you both. Thanks for having me.

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Ange

So please make sure to like, follow and subscribe

Alex

For any more information on the things we spoke about today there’ll be some links in the description below.

Ange

And that is..

Ange&Alex

Super Simple!

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Ange

Before combining your super, consider which fund is right for you. Check out the fees and costs of your funds plus any benefits that would be lost, such as insurance cover. Make sure your other fund(s) knows about any contributions you intend to claim a tax deduction for, before combining your super. If you have any questions, speak to a licensed financial adviser or visit the ASIC MoneySmart website for more information.

Keep in mind that tax rules can be tricky and are always changing. The information provided here is for general informational purposes and should not be considered as tax advice. For advice that fits your own situation, it's best to chat with a licensed tax professional.