Rice Warner has predicted a move towards the payment of total and permanent disability claims by instalments from superannuation funds as part of a larger transition within group insurance.
According to the firm’s Insights blog, the payment of TPD claims by instalments has only been adopted by a small number of super funds.
“It is expected that the payment of TPD by instalments will expand and, in time, will lead to a combination of TPD and disability income provisions in some funds,” Rice Warner said.
“This is a significant move which, to date, has only been adopted by a small number of funds, but many others are ‘watching this space’.”
Each instalment would be paid out following a new assessment of a claimant’s TPD status and, in some cases, their compliance with medical, retraining and rehabilitation requirements.
Rice Warner noted its effective application would require rules to determine the cases where only one single assessment would be made.
Such cases would include claimants who are clearly highly disabled without any prospect of improving to an extent where the TPD status would be questionable, the firm said.
Other cases would include small sum insured cases where multiple assessments and the payment of the claim by instalments would be financially inefficient.
Rice Warner said lump sum TPD payments receive favourable taxation treatment compared with monthly disability income payment.
However, it noted lump sums are generally being applied to take the place of income no longer able to be earned by the disabled member.
“This raises questions as to the adequacy of the lump sums and the need for customised advice for each claimant on how to effectively deal with the lump sum,” the firm said.