The Financial Rights Legal Centre and the Superannuation Consumers’ Centre (SCC) want an independent inquiry into universal terms for insurance in super.

In a submission to a Treasury consultation on the matter, they say the debate around universalising cover will raise questions about the way life insurance interacts with workplace insurance, the disability support pension and the National Disability Insurance Scheme.

Only an independent inquiry can resolve these fundamental questions, it says.

The Financial Rights Legal Centre wants community expectations on appropriate levels of financial support to be part of the inquiry.

The inquiry should examine whether more equitable standardised terms can co-exist with trustee obligations not to excessively erode member balances, and weigh the potential costs of implementation and efficiency benefits on terms, definitions and exclusions.

The community benefit of clear definitions outweighs any perceived cost of standardisation, the submission says.

“It’s clear that the narrowness of many total and permanent disablement (TPD) definitions do not meet community expectations,” it says.

The consumer groups call for policies that do not deliver TPD benefits as a lump sum to be banned, because they harm beneficiaries.

People need better protection through group insurance to ensure it is fit for purpose, and that means exploring what the community expects products to cover, the submission says.

“At the end of this process, we may discover that the current system cannot provide the protection people deserve in an affordable, equitable way; this may lead to more fundamental questions about the best way to protect people who can no longer work or support their families.”

Policies are hollowed out by fine-print exclusions to keep premiums down, it says.

“Keeping cover affordable by knocking back a large proportion of claims has a very serious risk of undermining the core purpose of insurance in superannuation. We need a better standard that delivers the help the community expects if people can no longer work.”

There should be a mandatory minimum for benefits, to prevent the creation of junk policies, the consumer groups say.