LegalSuper Salary Continuance in the spotlight

01/08/2018

If you’re like the majority of your legal colleagues, your first super fund when you left university was LegalSuper and it’s quite likely that where it has stayed ever since.

Because of this, we find a number of legal practitioners also rely on the Group Salary Continuance (or income protection) cover offered by the fund.  Why is this?  Well, it’s seen as an easy option and most assume that the cover might be suitable or tailored to someone who works in the legal field.

Fair assumption, however our analysis of the product below will demonstrate that this is not necessarily the case.  When compared to a ‘proper’ individual income protection policy that is available to you, funded personally or via your superannuation, it is easy to see why the more savvy practitioners have opted away from this one size fits all group plan.

Comparison of core policy definitions between Legal Super Salary Continuance and Individual Income Protection Plan.

Each of the core policy definitions are given a rating between A-C, with A being market leading and C representing a definition that is as inferior as anything else in the comparable insurance market.

In Summary

Core policy definitions comparison
Individual IP Policy LegalSuper Group Plan
Definition of pre-disability earnings A C
Definition of total disability A B
Guarantee of Renewability Yes No
Cover during inactive employment A C
Definition of Partial Disability A C
Premium Comparison
Individual IP Policy LegalSuper Group Plan
30 day waiting period

Benefit Payable to Age 65

38 year old, salary $150,000

Male non-smoker

Female non-smoker

$158.85pm*

$249.88pm*

$213.12pm

$332.92pm

* Under a ‘Superlink’ arrangement, you can have 95% of this premium funded from your super if desired.

In Detail

Individual IP Policy LegalSuper Group Plan
Definition of pre-disability earnings A C

Under an indemnity style policy, which LegalSuper’s Group Salary Continuance Plan is, if you are unable to work and go on claim, they will pay you a monthly benefit based on your pre-disability earnings.  LegalSuper defines your pre-disability earnings as your average monthly earnings in the 12 consecutive months preceding the date of your illness or injury.

In comparison, the Individual IP policy defines your pre-disability earnings as the highest average monthly earnings for any 12-month period within the 36 months prior to disability

In the event that you go on claim and your income in the previous 12 months has been below normal for whatever reason (you’ve taken some time away from work, you’ve commenced self-employment, your bonuses in the last year were below average), you can see how the LegalSuper definition of pre-disability earnings would leave you exposed from an income replacement point of view.

Individual IP Policy LegalSuper Group Plan
Definition of total disability A B

From an Income Protection point of view, Total Disability refers to the insurance company’s definition of your inability to work, and therefore receive a full monthly benefit until you are able to return to work. I.e. if you are ‘totally disabled’ according to the definition of your policy, you will be entitled to the monthly benefit.

The way in which your policy defines Total Disability is therefore at the heart of this plan.

Generally speaking, the more generous, flexible and clear cut the definition the better.

LegalSuper defines Totally Disabled as follows:

You are totally disabled (and therefore eligible to receive your total monthly benefit) if:

  • you are medically certified as being incapable of performing one or more duties of your Usual Occupation necessary to produce Salary; and
  • Remain under the care of a medical practitioner; and
  • You are not engaged in any occupation.

Potential issues with this definition are:

  1. This definition precludes you from working AT ALL. Even if your Dr suggests a gradual return to work, say half a day a week for a period of time, if this was to eventuate, your total disability benefit would stop and you would be assessed under a Partial Disability benefit, with a monthly amount calculated every month based on your loss of earnings

A more generous, flexible and definable definition commonly found in an individual income protection policy is as follows:

You are totally disabled (and therefore eligible to receive your total monthly benefit) if:

  • you’re not working for more than 10 hours per week in your usual occupation or a gainful occupation, and
  • you’re unable to perform the important income producing duties of your usual occupation for more than 10 hours^ per week; and
  • You remain under the care of a medical practitioner;

As you can see, all that this definition requires is acknowledgement from a treating doctor that you are unable to perform your important income producing duties for more than 10hrs per week.

In addition, and very importantly, you are still able to work up to 10hrs per week and continue on a full claim.

Individual IP Policy LegalSuper Group Plan
Guarantee of Renewability Yes No

Individual Income Protection Policy – excerpt from PDS:

As long as you pay your premiums we will continue to insure you with the same or enhanced terms and conditions until expiry. This applies even if you suffer changes to your health, you change occupations (including to non-professional occupations) or you take up different pastimes.

LegalSuper Group Plan – excerpt from PDS:

When does Salary Continuance cover end?
Cover for all benefits provided in respect of you (the Insured Member) will end, without the need for us to notify you, on the earliest of the following:

* the date this policy ends or the insurer notifies the Trustee that it has ceased to provide cover

The key difference here is that under the LegalSuper Group Salary Continuance plan, the insurer has the discretion to cease cover whenever they like, and without need to notify you.

The Individual Income Protection plan cannot be cancelled or altered by the insurer to provide a lessor benefit to you.

Individual IP Policy LegalSuper Group Plan
Cover during inactive employment A C

The LegalSuper Group Salary Continuance Plan, in order to comply with the SIS Act, states that an income protection benefit cannot be paid where you are not gainfully employed when an illness or injury arises.

If you are in between jobs or taking some time away from work, under this policy you are not covered during this period.

The Individual Income Protection policy allows coverage for up to 12 months of inactive employment.

Individual IP Policy LegalSuper Group Plan
Definition of Partial Disability A C

The Partial Disability benefit is designed to provide you with a partial amount of replacement income in the event that an illness or injury means that you can only return to work on a partial basis.

The LegalSuper Group Salary Continuance Plan states that Partial Disability Benefits may only be provided where the Insured has returned to work, earning a monthly salary less than their pre-disability salary, and is unable to perform one duty of their occupation.

Under this definition, In the event that you are able to return to work and do all of your duties, but only on a part time basis, you would not be eligible for a partial disability claim.

The Individual Income Protection policy states that the Partial Disability benefit is payable if you are working at a reduced capacity as long as the income earned is less than their pre-disability income.  There is no requirement to be completely unable to perform one of your duties.

Other Important Information / Considerations

Level of cover

If you do have Income Protection provided by LegalSuper, it’s important that you understand what level of cover you have.

Your level of cover is the monthly amount payable to you in the event you are unable to work due to illness or injury. It is deemed assessable income and it is likely LegalSuper would deduct tax from any amount payable to you.

Premium Structure

LegalSuper’s insurance premiums are calculated based on your level of cover, the waiting and benefit periods you select, whether you are male or female, and your age.

In regards to your age, according to the current arrangements, your premium increases in 5 yearly brackets.  I.e. if you are age 30, you pay the same premium as a 34-year-old.  When you become 35, your premium increases to the next bracket.

Benefit Period

This is the period of time the insurer will continue to pay you a monthly benefit so long as you are unable to return to work.

 Waiting Period

This is the number of days you must be unable to work before becoming eligible to receive benefits.

LegalSuper stipulates that you must be Totally Disabled (refer above for this definition) for 7 out of the first 12 consecutive days of the waiting period, and then either Totally or Partially Disabled for the remainder of the waiting period.  Again, refer above for how LegalSuper define Partially Disabled.

Portability

Any insurance cover you have with LegalSuper will end immediately on the date you cease to be a member of LegalSuper.  If at any stage you choose to move your entire super balance elsewhere, your cover will end.  Portability of your superannuation can be an important consideration and having your insurance tied to your super can make this not possible (I.e. you want to continue to hold cover but can’t obtain it elsewhere due to health reasons, you are forced to retain some super money with LegalSuper to pay the premiums.  This is generally not ideal and can result in extra fees).

MCP Lawyers Life is a specialist personal insurance advice business for Legal Practitioners, helping them make smart decisions about their personal and family protection arrangements including Life Insurance, Income Protection.

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