Superannuation and insurance law glossary of terms

Accumulation Superannuation Account

Is a superannuation product or account where each dollar that you contribute into the account is held and/or invested, and both the money you contribute and the investment returns are yours to be paid when you retire or get access to your super for any reason. These accounts are basically like a bank account that you can’t access until you retire or are able to get your super for some other reason.

These are now the most common kind of superannuation funds.

Life and disability insurance benefit premiums are usually paid for out of the money you pay into your accumulation account, so that you have insurance coverage.

Age-Based Insurance Cover

This is a term commonly used in life and disability insurance and refers to a type of insurance cover where the amount of your insurance cover can go up or down based upon your age.

Agreed Value Income Protection Policy

A policy of Income Protection insurance that pays a monthly benefit based on a pre-determined or agreed amount, rather than a benefit based on a percentage of your pre-disability income (see Indemnity Policy). It’s like an agreed value (or sum insured) home insurance policy.

Any Occupation

Refers to common TPD definition. Usually, an "any occupation" TPD policy definition will be satisfied if a person is unable (or unlikely) to be able to perform the usual duties of their own occupation, or any other occupation for which they are qualified by their education, training or experience. There are a number of different wordings of Any Occupation policy definitions and the policy terms should always be reviewed.

At Work/Active Employment

The meaning varies between policies and where present, it usually means that a person is working a minimum amount of hours per week (for example, 15 hours) in their own occupation without restrictions due to injury or illness. This is usually a requirement to get default insurance cover under a group insurance policy.

Benefit Period

The period of time that income protection insurance benefits are payable under a policy - e.g. 2 or 5 years or to age 65, 67 or 70.

Compassionate Grounds Withdrawal

An application that a person can make to withdraw money from superannuation early (before Preservation Age):

• To pay for medical treatment which is otherwise not publicly funded (or reasonably available);
• To pay for palliative care for you or a dependant;
• To make emergency mortgage payments or council rates required to avoid losing a home;
• To make home or car modifications to accommodate a disability for you or a dependant;
• To pay for expenses associated with death, funeral or burial of a dependant (but not the account holder);
• If they are suffering Financial Hardship (see below). Financial Hardship withdrawals are limited to $10,000 and are taxed at 22%.

Death Benefit

A lump sum benefit paid to the Dependents or beneficiaries of the deceased if they pass away. Also sometimes called life insurance.

Default Insurance Cover

Insurance coverage (usually for income protection, TPD or death) that is provided to members of super funds (or sometimes employees of the fund) when they become members of a super fund (or are employed by the fund). Usually, the cover is only provided if a person is At Work or in Active Employment when they join or become employed.

Defined Benefit Superannuation Account

These are super accounts that your employer contributes to when you are working, but instead of the money being received and invested and you being entitled to be paid both the money you contribute and the investment returns when you retire (or get access), your entitlement is calculated using a set (or defined) formula. This means that your super money is protected from investment losses but also doesn’t get the benefit of investment gains.

These accounts were really common in the 1990s but are less common now and are usually only available to Government workers.

Disability pension and lump sum payments are available under most defined benefit schemes if you get sick or injured and have to retire early.

Dependant

This is a term which has a specific meaning in the superannuation context and is relevant following the death of a member of a superannuation fund. The specific meaning of Dependant varies between superannuation funds and is usually set out in the super fund trust deed.

We can also find guidance on the meaning of Dependant in legislation. In summary, dependants can include:

1. a person’s husband, wife, de factor partner (including same sex partner); or
2. a person’s child (often including adult child); or
3. someone that is financially dependant on a person or who a person supports financially.
4. someone who:

• lives with a person; and
• shares household tasks with a person; and
• is financially dependent on a person; and
• has a close personal relationship with a person.

There are a number of different circumstances that can lead to a finding that two a person is/was a dependant, and it’s the relationships at the time that a person dies which is important to working out if there is a relationship of dependency.

The term is important, because, in most cases, a deceased’s person superannuation account balance (including any death insurance entitlement) will be paid to the deceased persons’ dependant(s).

Importantly, a deceased person may have more than one dependant.

Duty of Disclosure

A legislated rule that requires a person that applies for a policy of insurance to answer all questions asked accurately and to inform the insurer of all aspects of their past medical and lifestyle (eg smoking status) history that that person, or a reasonable person in their circumstances, would know to be relevant to the insurer’s decision to accept or reject their application for insurance.

The specific requirements of the Duty of Disclosure will depend on a number of factors unique to the person making the application for insurance and the nature of the insurance product which is being purchased.

Financial Hardship

To qualify to have some super monies released under this condition, an individual must, at the very least, have been receiving Centrelink entitlements for more than 26 weeks and possibly be having other financial issues.

Financial Planner or Advisor

Someone who is licensed to give financial advice and holds an authorised representative number of an Australian Financial Services Licensee.

Fixed Insurance Cover

This is a term used to describe disability insurance where your level of insurance cover remains the same, but sometimes as you get older, the cost of the insurance premium goes up, and your level of insurance cover remains the same.

Group Insurance Policy

A policy of insurance that covers multiple people (usually super fund members or employees of a particular employer), providing insurance benefits for TPD/Life and sometimes income protection.

Guaranteed Renewable

A type of life insurance policy. It is a policy on which a renewal cannot be refused so long as you continue to pay your premiums. With some other policies, like home and contents, an insurer can refuse to renew a policy if the risk of damage due to an insured event (e.g. flood) increases.

Life insurance policies in Australia are Guaranteed Renewable so that a renewal must be offered and they cannot unilaterally reduce the amount insured. Importantly, the insurer can increase the premiums payable on a Guaranteed Renewable policy.

Income Protection (“IP”) or Salary Continuance

Insurance benefits that are paid in place of a sick or injured person’s income if the person is unable to work due to sickness or injury. The payments are usually paid on a monthly basis for 2 years, 5 years or until 60, 65 or 70 years of age (depending on the individual terms of the relevant insurance policy/superannuation fund) for as long as the person is unable to work due to sickness or injury.

Income Protection benefits are taxed as income and paid by an insurance company from a policy which is either held in super or by a person directly. The payments are not superannuation monies and a person’s superannuation account balance (the money contributed to super) is not normally impacted by making a claim.

Indemnity Income Protection Insurance Policy

An insurance policy which pays a monthly benefit based on your Pre-Disability Income (ie the previous 12 months or a period of 12 months in the preceding 3 years). The period/method for calculating a person’s Pre-Disability Income varies between policies.

Level Premium

An insurance policy for which the premium does not increase with age (as is normally the case - see Stepped Premium), but is worked out based on your age at the time that you apply. This premium will increase with CPI but otherwise doesn’t increase.

Limited Cover

A type of insurance cover a person may receive if they don’t meet At Work/Active Employment eligibility tests when they obtain default insurance cover under a group insurance policy. If a person has Limited Cover, they may not be able to claim an insurance benefit for any pre-existing medical conditions and may only be able to claim for a medical condition which they suffered after their cover started.”

Medical Attendant’s Statement (“MAS”)

A form to be completed by doctors as part of an individual’s claim for Total and Permanent Disability (“TPD”), Income Protection (“IP”) benefits or release of superannuation account balance on the grounds of Permanent Incapacity (PI).

Mortgage Protection Insurance

An insurance policy that covers either the whole repayment of your mortgage or provides you with a monthly benefit which is equal to the monthly repayments.

MySuper

A type of superannuation product that complies with MySuper legislation which is designed to protect people who don’t choose their own super fund when they start a new job. The MySuper legislation rules are designed to protect MySuper members by requiring that these products have the following features:

• A single investment option;
• A minimum level of insurance cover for death or permanent incapacity and a TPD definition that is consistent with a condition of release (eg. permanent incapacity);
• Restricted fees and administration costs.

Own Occupation

A type of TPD insurance policy definition. This definition will be satisfied if a person is permanently unable (or permanently unlikely) to work again in their "own occupation". Usually, a person’s own occupation is that which they were completing immediately before they are forced to cease work due to illness or injury.

This is a more favourable definition compared to Any Occupation and these policies usually cost more to own. There are a number of different wordings of Own Occupation policy definitions and the policy terms should always be reviewed.

Permanent Incapacity (“PI”)

Usually requires that an individual ceases gainful employment and the fund is satisfied (usually by certifications from 2 doctors), that the member is unlikely, because of ill health, to engage in gainful employment that they are reasonably qualified for by education, training or experience. If satisfied, the member can usually access their superannuation account balance early.

Pre-disability Income

A person’s income before they cease work and claim Income Protection benefits. Under Indemnity Income Protection Policies, the Pre-Disability Income is the basis for calculating the monthly Income Protection benefits payable.

Preservation Age

Age after which a person can retire and access their superannuation account balance.

Stepped Premium

In contrast to a Level Premium, a Stepped Premium increases each year as a person gets older and their risk of illness or injury increases.

Terminal Illness­

In the insurance context, this usually has a specific meaning. It usually means that a doctor has certified that the individual is suffering from an illness or injury which means that they are unlikely to live for more than 12-24 months. It can entitle an individual to an early release of their super funds and sometimes an insurance lump sum benefit.

Total and Permanent Disablement (“TPD”)

A lump sum benefit which an individual may be eligible to claim if they cease work due to injury or illness and 2 or more doctors certify them unable to return to any work. The definition of TPD can vary between different funds/policies. People who are TPD can usually also access their superannuation monies/superannuation account balance (see Permanent Incapacity).

Trauma/Critical Illness Benefit

Benefits which are paid as a lump sum to an individual if they are diagnosed with a specified illness. They are paid irrespective of that person’s capacity to work. The type of illnesses that attract a payment include cancer, MS, MND, Parkinson’s Disease etc.

Waiting Period

The period (number of days) you must be unable to work due to illness or injury before your income protection claim payments will be made. Most people are paid benefits monthly in arrears. So, if a person has a 90-day waiting period, their first claim payment will be paid 120 days after the person ceases work.

Waiver of Premium

Is a common Income Protection insurance policy feature. It means that no insurance premiums are payable by a person when they are “on claim” and being paid income protection insurance benefits.