For our clients and their families one of the most common areas of advice we see problems arising is in the area of estate planning ‒ or more accurately, the lack of it.
We often find ourselves helping our clients unravel complex sets of circumstances that arise relating to death benefits from insurance in superannuation, when the client does not have an up-to-date Estate Plan and Will in place.
At the crux of it ‒ particularly in the case of Self-Managed Superannuation Funds (SMSF) ‒ is how effectively the estate has been set up to ensure the death benefits can be released swiftly to the desired beneficiary at time of the policyholder’s death.
Recently we invited our preferred Estate Planning expert, Owen Griffiths, of Griffiths Law, in to talk through some of the situations that have arisen with AFRM clients to get a lawyer’s opinion on the best way to resolve them.
After 20 years in law specialising in Estate Planning, the first thing Owen highlighted to us is that many people just don’t want to think about their own death. He said the simple fact is many people are emotionally reluctant to face the process of formally planning for their own demise.
“It is tough getting a client focused, to get their estate plan in place. Some clients are just not ready until they are ready,” Owen said.
A common issue we find is people simply not understanding the rules around who can – and cannot – be named as a beneficiary of your Life Insurance policies in superannuation.
We often find single people naming a non-dependent parent as a beneficiary and even in some cases we have had clients who have no children of their own, naming the children of their friends as beneficiaries.
As well-intentioned as such acts may be, the intent of the relevant Superannuation legislation and regulations make both of the beneficiary examples provided above ineligible under the law, if these nominated beneficiaries are not financially dependent.
The Superannuation Industry (Supervision) Act 1993 and its Regulations, restricts eligible beneficiaries of death benefits to the policyholder’s “dependants” defined as “the spouse of the person, any child of the person and any person with whom the person has an interdependency relationship.”
It is surprising how many times we come across insurance policies in superannuation in which the superannuation fund itself has allowed the policyholder to name an ineligible person as the “nominated beneficiary.”
Alternatively, we often see a “set and forget” approach where a policyholder has named their spouse as the nominated beneficiary, then the relationship ends, but the policyholder fails to update their nominated beneficiary at the end of the relationship. It doesn’t take too much imagination to see the unintended consequences of this scenario.
Another common (but more complex) issue we find is properties owned by SMSFs and how to disentangle them from the SMSF when the sad time comes to cash out a death benefit.
If the beneficiary does not have an up-to-date Will in place, and the SMSF has not been structured in the first instance to provide sufficient cash for a death benefit to be paid, numerous complications can arise.
On more than one occasion AFRM has worked with clients who already have a SMSF in place with most of its investments tied up in property and our analysis finds that there is insufficient liquidity in the fund to pay a cash death benefit.
In such cases, we are bound to advise the client to go back to the financial adviser who set up the SMSF, explain the problem, and have them face the often unattractive proposition of selling the property to provide the available cash reserves to allow the death benefit to be paid.
Of course, this is often not the preferred strategy for the client if the property is generating good passive income that can be – or is being used as – a pension income.
One of the most common examples AFRM sees is when a married couple owns property through their SMSF.
We asked Owen to walk us through such a scenario and how it might be addressed through an estate plan.
“In that case, we have a mum and dad. Dad passes away. His member balance may contain half of that property,” Owen said.
“So, the death benefit nomination... let’s just say has everything going to the wife.”
“So, how do we get that member balance to the wife?”
“A death benefit income stream is not always an option depending on the individual’s particular circumstances. What you may do is an in specie transfer subject to the terms of SMSF Trust Deed. I think it is the only way it can be done to retain control of the asset if the individual’s circumstances don’t permit other options.”
However, Owen said in such a scenario there would be potential tax implications that would need to be examined by an accountant.
“The other question I would have (for this example), is there pensions running out of that particular fund?” Owen added.
Put simply, the best thing anyone can do is to ensure that they get Estate Planning advice to ensure the best death benefit nomination for their specific circumstances AND to have an up-to-date Will in place.
I have outlined above just a few of the many examples we, at AFRM, have seen that underscore reasons why we cannot over emphasise the importance of having an effective and up-to-date Estate Plan and Will in place.
Owen agrees, saying that being “intestate”, or without a Will, when you die creates enormous difficulty and expense for your loved ones.
“It is such a bad result with that scenario and no Will. The hoops that you’ve got to jump through to get a grant from the Court called Letters of Administration – there’s a lot of hoops that you’ve got to jump through: Will searches, was there a de facto partner or wife? You’ve got to prove all of this to the Court before they will grant you Letters,” Owen said.
In closing, any time we are working with our clients, when it comes to nominating beneficiaries for death benefits in insurance in superannuation – and also in retail life policies – failing any specific directions given by the client or their Estate Planning specialist, our default position is to place a binding nomination to the spouse.
This binds the trustee to pay the funds directly to them, by-passing the estate, and thus by-passing any issues that may arise from poorly prepared estate planning arrangements.
We will also recommend that the client gets full advice from all relevant specialists, estate planning lawyers and accountants alike.
As a respected AFRM client, we would appreciate anything you can do to help encourage your friends and family members who have not already obtained estate planning advice, to do so ‒ before it is, quite literally, too late.
Sincerely,
Rob Vitnell
Managing Director AFRM
Independent report into life insurance claims management validates AFRM’s service offering
In 2017, a new Life Insurance Code of Practice was implemented as part of the broader regulatory oversight of the life insurance sector.
All life insurance companies which are members of the Financial Services Council (FSC) were required to be compliant with the Code by 1 July 2017.
An independent Life Code Compliance Committee was established to monitor the industry’s compliance with the Life Insurance Code of Practice.
In March 2022, the Committee released its Life Insurance Code of Practice Annual Industry Data and Compliance Report 2020−21. Data in the report was sourced from the 24 major insurers who “subscribe” to the Life Insurance Code of Practice [named in Appendix 1 of the Report].
Inadvertently, the Report provides a validation of the services we provide you at AFRM.
We help our clients with every aspect of administering their policies, including helping make sure that all renewals and premiums are paid on time. Or, if not, ensuring that those policies are not cancelled without our client’s knowledge.
On a number of occasions when this kind of thing has occurred, we have had policies reinstated for our clients.
If our clients ever do need to make a claim, we advocate on their behalf with the insurer, manage every aspect of the claim process, liaise with the insurer, compile all of the supporting documentation required to ensure the claim is accepted, and if any objections are raised by the insurer we will use our exceptional knowledge of product and policy wording to present the best possible arguments that the claim should be accepted.
In short, we only submit claims we believe are valid and that should be approved. And insurers know we will adhere to that belief until we get the best result possible for our clients.
Consider what we do in the context of observations made in the Life Code Compliance Committee’s March Report by, Jan McClelland AM, Independent Chair of the Code Compliance Committee.
On insurers not providing policyholders with annual renewal notices on time:
“More than 373,000 customers were impacted by failures in subscribers’ systems and processes for managing compliance with section 6.3 of the Code regarding annual notices.”
“The potential for customers to be adversely impacted by not receiving their annual notice on time and with all the information they need is high. It could result in the customer’s policy lapsing without their knowledge…”
On complaints management processes:
“The 2020–21 data showed that almost half of all claims decisions were reversed when a customer made a complaint. This suggests that subscribers’ processes for assessing claims in the first instance may be inappropriate or inadequate.”
“Having a claim incorrectly declined, then being exposed to a potentially lengthy dispute resolution process, can cause severe detriment to a customer at a time when they are already vulnerable.”
During the period, 110,488 claims were assessed and 94,688 were resolved.
Of those resolved, it should be noted that 93 per cent were accepted and just seven per cent declined.
However, a very significant 429,347 policyholders were impacted by breaches to the Code of Practice, almost double the previous year. The top three issues related to:
Policy changes and cancellation rights (Chapter 6 of the Code)
Policy design and disclosure (Chapter 3 of the Code)
When you make a claim (Chapter 8 of the Code)
Following are a series of excerpts from the report that I believe speak to the fact that none of these issues would have arisen if the policyholders were clients of AFRM.
The report stated that breaches of section 6.3 of the Code, relating to annual policy notices, impacted the highest number of customers (a total of 373,343 or 87% in 2020–21).
The report said:
“Failure to issue the annual notice on time, or failure to include all relevant information in the annual notice, can adversely impact customers and prevent customers from making an informed choice on the suitability of the life insurance policy.”
Re complaints made about claims, the report noted that a staggering 45% of claims decisions were reversed when a customer made a complaint:
“For customers, having their claim incorrectly declined and then being subjected to a potentially lengthy dispute resolution process can cause severe detriment… Furthermore, there may be customers who did not lodge a complaint following a claim decline who would have had a decline decision reversed had they done so.”
The report also noted that insurers had not improved claims assessment timeframes, and in fact “assessment timeframes for income-related claims have been increasing over the last four years.”
“A fair, transparent and thorough claims process is important. The claims process for a customer often occurs during an extremely stressful and challenging period of their life.
“They may have no income, or are dealing with illness or injury, and so unnecessary or unexplained delays have the potential to exacerbate already difficult situations.”
“…The fact that most re-opened claims were subsequently admitted when customers provided additional information highlights the importance of subscribers [insurers’] working closely with customers during the claims process to be able to efficiently obtain all the information needed to assess the claim.
“…Re-opened Trauma claims were most frequently admitted, accounting for 82% of all admitted re-opened claims, followed by re-opened DII (Disability Income Insurance) claims (80%).
“Consistent with the assessment requirements of Trauma and DII, most of these re-opened claims had originally been closed because the customer or their representative had not provided the information required to assess the claim on an ongoing basis.”
This Life Code Compliance Committee report totally vindicates the AFRM business model and the service we provide you, our clients.
Again, none of these negative policyholder experiences would have arisen if those policies were held by AFRM clients – and if those claims had been managed by AFRM.
Our role is to be an advocate for you and, when necessary, hold insurers to account to ensure our clients achieve the full and correct claim benefit to which they are entitled.
We step in on your behalf and manage the entire claim process, taking that stress away, so ideally, you can focus on rehabilitation and getting well again.
Our aim is to provide you with the best possible claims experience during what can be the most emotionally, intellectually and physically challenging time in your life.
Having achieved about $240m in client claims paid, we hope, also serves to make that point.
Case Study
“This story highlights the importance of doing all we can to stay as healthy as we can – for as long as we can.
“According to the statistics, once we get one major injury or chronic illness the chances of being diagnosed with a second, a third, or even more, are significantly increased.”
“This is an important piece of information to keep top of mind when considering an appropriate financial risk management plan for you and your family.”
Rob Vitnell, AFRM Managing Director.
This is the story of David [name changed to protect client privacy], a long-term AFRM client who has suffered from a veritable shopping trolley full of chronic injuries and illnesses over the past decade.
He is 63 years old, 178cm (5’10”) tall and more than 100kg (15 stone, 10.5 pounds).
David’s list of chronic illnesses and ailments include:
Chronic pain after having both hips replaced in 2013
Obesity
Chronic severe knee osteoarthritis in both knees
A serious ankle injury rendering the joint so unstable it requires fusion surgery
Varicose veins
Hypertension
Psoriasis
Retinal haemorrhages
Chronic right shoulder pain as a result of a Motor Vehicle Accident, requiring a steroid injection to relieve pain
Chronic pain and weakness in right arm due to a biceps tendon rupture
Chronic pain and weakness in his left hand, fingers and thumb following surgery to relieve an ulnar nerve entrapment; and,
Depression.
On the face of it, you may think David has just been incredibly unlucky, but the fact is, his situation is quite common.
Medical professionals have a name for it. The National Institute of Health and Welfare (NIHW) calls this kind of scenario “multimorbidity.”
There is plenty of authoritative information to support the view that if you suffer a major injury or chronic illness, the chances are dramatically increased that you will suffer additional physical and mental illnesses.
Who is more likely to have multimorbidity?
Ten chronic conditions* were selected for this report because they are common, pose significant health problems, and have been the focus of ongoing national surveillance efforts. In 2017–18, an estimated 20% of Australians (4.9 million people) self-reported 2 or more of the 10 chronic conditions.
Females and older people were more likely to have multimorbidity:
Females were more likely to have multimorbidity than males in all age groups examined.
Across all ages, 23% of females had multimorbidity compared with 18% of males.
1 in 2 people aged 65 and over had multimorbidity (51%) compared with around 1 in 8 people aged 15–44 (12%) (Figure 1).
Multimorbidity can negatively affect many aspects of life
Living with multimorbidity can have physical, emotional, social, financial, and lifestyle impacts. Compared with adults with no chronic conditions and after adjusting for age, adults with multimorbidity were less likely to be working (67% compared with 83%), and more likely to:
live in the lowest 2 socioeconomic areas (45% compared with 34%).
have a restriction or limitation in everyday activities (50% compared with 7.9%).
have poor self-assessed health (32% compared with 5.3%).
experience high or very high psychological distress (35% compared with 4.3%).
Back to David and his long list of ailments and how they developed over time.
In 2009, he had lap band surgery to address obesity. In 2013, he had both hips replaced. In that same year he was also being treated for depression.
In 2016, he was diagnosed with damaged tendons and ligaments in his ankle. He’d had trouble with his ankle going back to his rugby playing days, when he’d sprained it and rolled it a number of times.
By January 2021, the ankle ligaments had deteriorated to the point where he was awaiting ankle joint fusion surgery and also a knee replacement for deterioration of the knee joint.
He had not worked in about five years by the end of 2020, after originally leaving his job, he said, due to depression. This was around the time he contacted AFRM and asked for assistance with investigating whether he could make a claim on his Total and Permanent Disability (TPD) insurance policy.
David held a Term Life with TPD policy which provided a death benefit of more than $105,000, to be split between his children, and an “own occupation” TPD benefit of just under $100,000.
At the time, he told AFRM he had not been able to find work and also that his GP and other specialists had told him he was unlikely to be able to work full-time ever again because of the combined effects of his various medical conditions.
AFRM Advisor, Phil Hatherly, talked David through the claims process and the documentation he would need to obtain from his medical professionals to support the claim.
David was understandably a little confused about which of his medical practitioners had to complete the insurance medical report forms. Apart from his GP, he was seeing two different specialists at the time, one for his ankle and another for his knee.
Through talking with David, Phil began to get a better understanding of the factors leading to David’s depression, including a traumatic divorce followed a year later by the loss of both his parents in the same year. The series of traumatic events, compounded with his physical ailments, led David to leave his job and take some time to try get himself in a better place mentally.
For the years since leaving his job David had been primarily self-funded, using his savings.
In February 2021, the list of ailments included by his GP in David’s health management plan provided as support for his claim documentation was extensive:
Ongoing pain after having both hips replaced
Obesity
Varicose veins
Serious ankle injury (unstable joint requiring fusion surgery)
Hypertension
Psoriasis
Knee osteoarthritis
Retinal haemorrhages
Ongoing shoulder pain as a result of a Motor Vehicle Accident
Ongoing issues as a result of a biceps tendon rupture
In April 2020, the insurer advised AFRM that it would require further information from the relevant medical practitioners that had been treating David.
The insurer also commented that the handwriting in the original medical report provided by his GP was practically illegible. Therefore, it wanted the name, address, and contact details of the practitioner so they could ask questions of him/her directly to obtain further information in order to be able to assess the claim.
A period of time passed with no further news from the insurer, other than the information that it was still awaiting responses to the additional questions asked of David’s GP.
So, AFRM Claims Manager, Anthony De Lellis, contacted David to advise him of the situation and offer advice on what had to happen in order to progress the claim. It was late June 2021 by then.
David advised that he’d had a recent appointment with his GP for the very purpose of completing the required medical reports, promising they’d be forthcoming soon.
It is perfectly reasonable for the insurer to seek further information to help it understand and assess any claim. In the case of an “own occupation” TPD claim it is also entirely appropriate to investigate the claimant’s ability to perform the same tasks and activities required to do their stated occupation at the time the policy was commenced.
In David’s case, he had been a Customer Service Manager in the travel and tourism sector.
In his claim form, David said the tasks this role required included 40 per cent fielding calls from customers, 40 per cent managing the issues raised in the calls to find satisfactory solutions for the customers and also 20 per cent of his time at work was spent reading and responding to emails.
In short, it was a very sedentary role with a focus on typing and handling phone calls.
The follow-up GP report produced in June 2021 included a medical condition that had not been mentioned in the report provided in February. Among the answers to specific questions asked by the insurer, the June GP report noted that David had also developed an issue with his ulnar nerve and had undergone surgery in 2020 to address it.
The ulnar nerve is one of the three main nerves in your arm. It travels from your neck down into your hand. People can suffer from a condition called ulnar nerve entrapment when the ulnar nerve in the arm becomes compressed or irritated.
The most common place for compression of the nerve is behind the inside part of the elbow. Ulnar nerve compression at the elbow is called "cubital tunnel syndrome." [Source: OrthoInfo.]
Apart from causing pain, this condition can also result in problems with the related hand and fingers, including weakness and hindered mobility.
The GP advised the insurer that David despite the surgery, was continuing to suffer ongoing loss of strength in the fingers of his hand on the affected arm and also the thumb of that hand had remained painful during the months since surgery.
Again, we are talking about the cumulative effects of multimorbidity here.
So, in response, to the insurer’s questions, the GP reported that David had been treated by three separate specialists in relation to his various ailments which included severe arthritis in both knees, the severe ankle injury (requiring joint fusion surgery), pain in his thumb from the ulnar nerve entrapment, ongoing pain, weakness and immobility as a result of all of the above and the double hip replacement that had taken place back in 2013.
In summing up his physical capabilities, the GP reported that David could not walk more than 45m, could not climb a single flight of stairs, could not use his left hand to type, and could not sit, nor stand, for any extended period of time due to pain.
Thus, in the GP’s opinion, David was not physically able to ever return to work again while his current physical conditions persisted.
In late July 2021, the insurer advised AFRM that the additional information and responses had been received and were being reviewed and assessed by its “rehabilitation team.”
In early August AFRM’s Claims Manager, Anthony De Lellis, followed up again seeking a progress report from the insurer.
About a week later, the insurer responded with something of “a curve ball” that AFRM had to address as soon as possible to keep the claim progressing in a way that would ultimately produce a favourable outcome for David.
The insurer raised a number of issues uncovered while mining through David’s entire medical history. One of which was unknown to AFRM.
The insurer said a number of facts uncovered warranted further investigation including:
David had reported that he had ceased work due to depression, however the insurer had found little evidence of ongoing treatment for depression post 2017. Further, one of his medical practitioners had made a comment in David’s clinical notes that David had “retired.”
Following leaving his job in 2016, the insurer said it found evidence in his clinical notes that David had travelled for the next four years to a number of countries / regions. [including North America and SE Asia.]
David’s employment had always been primarily sedentary.
The insurer stated:
“He has managed to travel with his ongoing medical conditions (ankle, knees and hips) for four years after he ceased work, therefore we need to understand more about his functional capacity to perform his job in a customer service role at the date of assessment.”
It also noted that David’s policy wording stated:
“If at the time of the life insured's sickness or injury the life insured is permanently retired from the workforce and is not engaged in full time domestic duties the life insured is only TPD if they have suffered a loss of independent existence.”
Accordingly, the insurer asked AFRM to assist in obtaining the following additional documentation in order to continue assessing the claim:
A statement from David’s former employer formally stating David’s reason for ceasing work
A copy of all financials and tax returns for the past six years, so the insurer could know David’s pre-disability income and also understand how he had been supporting himself since he ceased work
Information as to whether David had been receiving Centrelink benefits, Jobseeker payments, or similar? …and if not, why not?
Finally, the insurer advised it would be independently requesting a copy of David’s Centrelink file and also a further “Treating Doctor report” to; it said; “…better understand the insured's condition, treatment, and capacity to work as well as the activities of daily living, in case he is to be assessed against the Loss of Independent Existence definition as at the date of assessment.”
Without missing a beat, AFRM’s, Anthony De Lellis, immediately responded to the insurer requesting a copy of the clinical notes files it had relied upon to come to its current position.
Soon after Anthony received a 112-page clinical notes document that had been created as part of its investigation.
It was now September 2021, and Anthony contacted David to provide full details of the latest interaction with the insurer, including the specific further information it was seeking before progressing any assessment of his claim.
Significantly, Anthony also provided David with the wording of the policy definition the insurer had said it was now focusing on:
“If at the time of the life insured's sickness or injury the life insured is permanently retired from the workforce and is not engaged in full time domestic duties the life insured is only TPD if they have suffered a loss of independent existence.”
[Key phrase emphasis provided by AFRM.]
The final key piece of information that helped obtain the best possible financial outcome for David came in his GP’s response to the latest round of questioning from the insurer in October 2021.
The doctor stated:
That David had been suffering ongoing pain in the wake of his 2013 hip replacement surgery, resulting in him being unable to work from August 2016
That he continues to suffer from pain and immobility
That he has difficulty climbing stairs and walking more than 20m
That David would be likely to require further surgery to his knees and ankle, and also potentially further weight loss surgery
That David has difficulties with Activities of Daily Living, including difficulty dressing himself because of his issues with pain and weakness in his hands, that a cleaner is required to help with cleaning his home because of his physical pain and immobility, and that this immobility means he has an extremely limited ability to use public transport
That David will be unable to find gainful employment because of his difficulty using his hands and his inability to sit or stand for any length of time – and of course his lack of mobility.
AFRM’s Anthony De Lellis, compiled all of the required additional information and submitted it to the insurer mid-October 2021.
“It really could have gone either way, but I was confident we had compiled sufficient information and evidence to meet the requirements of the policy definitions of TPD,” Anthony said.
And he was correct. By late October 2021, the insurer contacted AFRM to advise that based on the latest round of information received and reviewed David’s claim had been accepted.
Not only did David receive his full TPD benefit of almost $90,000 but he also received insurance premium refunds of more than $8,000 for his policy premiums going back to late 2016.
“David’s life is extremely tough but at least these additional funds will help with his ongoing cost of living and medical treatment.”
“This story highlights the importance of doing all we can to stay as healthy as we can – for as long as we can. According to the statistics, once we get one major injury or chronic illness the chances of being diagnosed with a second, a third, or even more, are significantly increased.”
“This is an important piece of information to keep top of mind when considering an appropriate financial risk management plan for you and your family.”
Rob Vitnell, AFRM Managing Director.
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