More people are taking up life insurance through their superannuation funds and the advent of MySuper is expected to enhance that trend, with all super funds having to offer death and total and permanent disability (TPD) cover to members.

TAL group life chief executive Andrew Boldeman said under MySuper changes, all super funds "must have an insurance strategy for their members, so trustees must develop those strategies".

"There is a minimum level of cover trustees must offer, in particular, total and permanent disability cover. So there is a benefit for members from an insurance perspective," Boldeman said.

"The core purpose of superannuation is the protection of people's retirement income. What's being recognised by MySuper is the importance of insurance as part of people's retirement plans."

CommInsure industry funds head Frank Crapis said while most super funds currently offered death or TPD cover, the need to offer both to MySuper members could broaden life insurance coverage among Australians.

"More people will have TPD offered to them whereas before they may have only had death cover, so more people will probably have TPD coverage through MySuper changes," Crapis said.

MLC general manager of group insurance Megan Beer said in recent years, super funds had broadened their life insurance offerings, with more workers, such as casuals, older workers and previously excluded occupations, able to access life insurance.

"I think that trend will continue going forward under MySuper," Beer said.

But, at this stage, with so many details still to be worked out, including the final definition of TPD insurance, "a lot of trustees are focused on developing their insurance strategies from a governance perspective", she said.

She said she did not expect too much change in the nature of life policies offered to members over the shorter term.

"For the time being, I think if trustees are comfortable with their current insurance strategy, they will probably stick with the status quo," she said.

Crapis said he also also believed policies were unlikely to change too much, apart from mandated changes.

"What I've seen in talking to the market in terms of group insurance is that most funds are looking to continue the insurance cover they currently offer and continue that in a MySuper environment and make any necessary changes," he said.

However, one change that could potentially disadvantage super members was the likely requirement that TPD must be offered on an any-occupation basis, that is, people would only be paid benefits if they could not return to any occupation for which they were trained, skilled or experienced, he said.

That compares to some existing TPD policies that offer own-occupation coverage, that is, people are paid benefits if they cannot return to their existing occupation.
           
"Some members may be disadvantaged by these changes if they were previously on own-occupation policies and they may need to go outside their super fund to get additional cover directly from an insurer or through a planner or adviser," Crapis said.

Indeed, the need for individual life insurance policies was not eliminated by MySuper, the insurers said.

"Members still have different insurance needs, so they might decide to structure their life insurance outside of their super," Beer said.

"Trauma or critical illness insurance won't be able to be offered under MySuper, or by any other super fund, and from an underinsurance perspective, that's where a lot of people don't have cover."

Boldeman said limits on sums insured under life policies was one area where super members could not necessarily get the coverage they needed.

"One of the challenges around insurance offered through super is the level of cover, so you still have many people who are underinsured. So, in many cases, financial advisers will be well positioned to speak to their clients and assess the appropriate level of life cover," he said.

As insurance policies paid through super were counted towards concessional contribution caps, a reduction in caps might also force higher income earners to pay for life insurance outside of their super, he said.

Beer said "given the MySuper reforms seek to ensure that trustees strike a balance between maximising retirement benefits and providing adequate default insurance, this may limit the level of coverage trustees can offer".

While income protection (IP) did not need to be offered under MySuper changes, with superannuation guarantee (SG) contributions rising from July 2013, Crapis said he expected default IP cover would become more common.

"As SG contributions rise and as fund account balances grow that will give rise to an important opportunity for more funds to introduce default IP cover with a greater default period of coverage, for example, for three years or five years, or up to age 65," he said.

"IP will be an area where funds can differentiate their insurance offering, compared to TPD products, which will be more commoditised."

Boldeman agreed on insurance being an opportunity for super fund differentiation.

"While MySuper is broadly about low fees and for people who haven't engaged heavily with their super, it's about a generic superannuation product, so funds' insurance offerings will be something on which they can differentiate," he said.