Nearly half of Australians cant afford to wait for default disability insurance | MLC Life Insurance
Media release

06 March 2024

Nearly half of Australians can't afford to wait for default disability insurance, women most impacted: MLC Life Insurance research

Australians support reform to legislated default product design

Nearly half of Australian workers have three months' or less savings in the event of a disability which prevents them from working, with almost a third of women only having one month of savings according to new research undertaken by MLC Life Insurance.

The research, conducted by Freshwater Strategy for MLC Life, challenges the current government-mandated default design of disability insurance to include only Total and Permanent Disability (TPD), showing that women are especially vulnerable to loss of income in an environment where TPD insurance requires claimants to sustain a total and permanent disability and sees individuals waiting an average of 2.5 years before they even lodge a claim.

While 22 per cent of men have savings of less than a month, the same is true for 35 per cent of women, demonstrating a 59 per cent gap. Overall, 46 per cent of all Australians have an income buffer of just three months or fewer.

The research demonstrates that it is also men who are more likely to be comfortable at the other end of the spectrum. While 19 per cent of Australian men have a savings buffer of 2 years or more, just 11 per cent of women live with the same level of financial security.

The research, conducted by MLC Life Insurance to explore the evolution of the product design of default TPD insurance, shows Australians are overwhelmingly in favour of a new approach, with 57 per cent preferring a steady stream of regular income over a lump sum payment in the event of illness or injury.

“The current approach to disability insurance in superannuation is centred on a binary assessment of total and permanent disability,” said Kent Griffin, Chief Executive Officer for MLC Life Insurance, “and, while it works for some, the evolving needs of members and changing nature of disability requires a debate about the most appropriate default disability insurance system that meets these needs.”

“TPD is a crucial safety net for those experiencing severe and long-lasting impairments, however its binary framework falls short in addressing the complex needs of Australians who experience temporary disability through injury or illness which is increasingly common in today’s environment.”

The current regulatory framework has led to most trustees providing only TPD and death insurance by default, leaving many members reliant on proving TPD without temporary incapacity support to enable them to get back on their feet and focus on recovery.

While TPD insurance serves a crucial purpose, its essential terms, lump sum nature and the fact that many TPD claimants ultimately return to work raises serious concerns about its effectiveness and sustainability as part of the current legislated default system. The research shows almost 50 per cent of Australians thought current practice was unacceptable and 60 per cent support changing the current default system if it reduces costs for consumers.

“Australians revealed a clear preference for income stream alternatives to lump sum payments in the event of disability,” said Mark Puli, Chief Group Insurance Officer for MLC Life Insurance. “This preference aligns with the reality that many Australians simply lack sufficient savings to sustain themselves for extended periods of unemployment due to temporary disability.”

Alarmingly, under the current lump-sum disability insurance model, a majority of Australians (55%) indicated they would pursue a disability claim even if they anticipated recovery or a return to their previous employment. This stark finding highlights the inherent flaw in the current default disability design, which may incentivise individuals to prioritise meeting the eligibility criteria rather than focusing on their recovery.

“People shouldn’t have to choose between their health and financial support, inadvertently increasing their risk of developing a level of permanent disability that necessitates support under the National Disability Insurance Scheme (NDIS). This heightened risk places a strain on the sustainability of the entire health and wellness ecosystem and worker safety net,” Kent Griffin said.

The research accompanies the release of a green paper by MLC Life Insurance exploring the evolution of disability insurance in super to deliver better outcomes for Australian workers facing illness and injury and superannuation trustees acting in the best financial interests of members.

“As one of Australia’s oldest life insurers, we’re determined to work with government, trustees and consumers to develop a more equitable and sustainable framework for supporting members with a disability, especially those with mental health-related disabilities,” said Mark Puli. “This framework should consider income stream alternatives within superannuation, address the gaps created by a total disability framework and instead focus on health, wellbeing and recovery, and enable a better and supportive interaction between private and public support schemes such as the NDIS.”

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