Last month we discussed the potential impact of applying for the early release of superannuation due to financial hardship during COVID-19. In the wake of the pandemic and subsequent lockdown, more and more Australians have fallen into dire financial straits and the temporary easing of criteria for an early release of super led to many people clamouring for a withdrawal. Persons looking withdraw their super however should be wary, as even a partial withdrawal could mean giving up access to life insurance benefits, including total and permanent disablement benefits.
The possibility of a significant number of totally and permanently disabled persons withdrawing their super and inadvertently giving up their rights to insurance entitlements they could have otherwise claimed for is certainly concerning and is not the kind of story we would want to hear in the middle of a pandemic and economic recession.
Amid these concerns the Financial Services Council (FSC) has announced a new initiative designed to ensure that a person’s total and permanent disability cover will not be affected when they make a claim with participating life insurers.
While this announcement is reassuring, there are some very important things to consider.
First, the initiative only relates to life insurance companies membered with the FSC and only if those member companies have agreed to participate in that initiative. Life insurers will confirm their participation through a statement or their respective websites. Only time will tell if this initiative or similar initiatives become more universally adopted by the industry.
Second, the initiative is subject the to the following conditions: –
- You were working in your normal capacity on 11 March 2020, when the World Health Organisation declared coronavirus to be a global pandemic;
- You have had reduced working hours or lost your job due to COVID-19 since 11 March 2020;
- You become disabled as a result of an illness or injury between 11 March 2020 and 27 September 2020 inclusive;
- You have maintained your TPD cover at the time you become totally and permanently disabled; and
- You lodge your completed claim form on or before 1 January 2021.
If you meet the above criteria, on an ex-gratia basis, participating life insurers will assess your claim using the applicable disability definition based on your working arrangements as at 11 March 2020.
Use of the term ex-gratia has some interesting connotations. The term is used describe an act (often a payment) done from a sense of moral obligation rather than because of any legal requirement, indicating that the initiative is not intended to be legally enforceable against a member company, should that member company not follow through with the initiative despite agreeing to participate.
As mentioned in our previous article, persons out of work due to an illness or injury should still make enquiries regarding their life insurance benefits and obtain legal advice to ensure their rights are protected, before making a decision on when and how to make an application for the early release of their super. The announcement by the FSC should not be a substitute for good legal advice.
All things considered however, the FSC initiative it is a welcome gesture to those affected by a disabling illness or injury and in serious financial need, despite its limited scope. It will be interesting to see the extent that participating life insurers adhere to the initiative.
