Access Super Earlier – Changes to Terminal Illness Definition

On the 1st July 2015 the Federal Government changed the definition of terminal illness for the purpose of superannuation and tax law changed whereby the period to be able to make a claim was extended from 12 to 24 months. This significant change provides those suffering from a terminal medical condition earlier access to their superannuation and helps ease the financial burden.

How does the new definition affect my Life Insurance policies?

The majority of Life insurance policies have a Terminal Illness component in them whereby if you meet the definition of having a terminal illness, the full insured life benefit can be paid out in advance prior to death.

Up until recently insurance companies have continued to keep the 12 month clause for terminal illness benefits i.e. you could only claim under this provision if your were diagnosed with an expected life span of 12 months or less. This obviously creates an issue (from a claims perspective) and confusion for clients because the changes referred to above are purely relating to the account/investment balance within a superannuation fund. The majority of superannuation funds have Life insurance/Terminal Illness within them as a default cover. So you can have the real life scenario where a client may have $200K as an account balance and $800K Term Life insurance within the super fund. If the client is diagnosed to be terminally ill and likely to pass away within 24 months, they could access the $200K but would not be able to access the $800K until two medical practitioners certify the illness will result in death within 12 months.

First to market changes

An announcement was made earlier this year by one of the retailer insurers, who have confirmed they are extending their definition of terminal illness out to 24 months with an effective back date of 1 October 2015. This is an important step in providing clients with early access to both their superannuation and Term Life insurance benefits. Pressure will now be on other retail insurers to respond. The likelihood will be that the majority of retail insurers will change their terminal illness definition to 24 months.

Another important consideration is that the retail Term Life insurance changes may not be extended to group and industry superannuation funds in the short term as these policies normally take longer to respond and aren’t under as much pressure to change.

Whilst we never like seeing our clients claiming under these provisions we also hate seeing clients being under financial stress when they are unable to access these funds to meet their medical bills.

If you require any additional information or would like advice on the terminal illness provisions within your life policies please contact Hayden White, Risk Specialist at Poole Group Accountants & Investment Advisers – hwhite@poolegroup.com.au / 07 5437 9900.

Hayden White

Hayden has worked in the financial services for last 15 years and provides specific direct equity investment advice both for clients that require portfolios inside and outside superannuation.