A complainant who says “inappropriate advice” from his adviser led to a “loss of cover” for income protection (IP) benefits has won his dispute.

The Australian Financial Complaints Authority (AFCA) says the adviser from RI Advice Group failed to act with a duty of care, causing the complainant a loss in terms of not being insured for his total current salary at the time of claim.

The dispute arose after the complainant, who held two IP policies including one via his superannuation fund, made a claim under the two policies following a hip surgery in February 2020, leaving him unable to work for the next nine months.

His claims were not denied but his superannuation fund did not pay him his full monthly benefit as it offset the payment he was receiving from his existing personal policy that was being serviced by the RI adviser. The super-held IP policy contained an offset clause in respect to benefits payable under other policies and the complainant had been provided product disclosure statements about the offset provision.

He says the “inappropriate advice” from the financial firm regarding reducing the monthly benefit of his industry superannuation fund cost him about $5000 in lost benefit per month for the time he was off work after the surgery.

The complainant, who had approached the RI adviser about his IP needs, had said at a meeting in March 2019 he was looking to increase his existing IP insurance serviced by the adviser to reflect his current salary.

He further stated his intentions in a telephone conversation in July that same year with the possibility of cancelling his industry superannuation policy, and he wanted and communicated his intentions to be covered for a total monthly benefit of $9,630 under the two policies in the event of a claim.

He decided to increase his personal IP cover after his super fund informed him on more than one occasion that generally a member cannot claim on two policies at the same time as only 75% of total income can be paid and that any other income, including benefits from the other policy, will be offset against the super fund’s policy.

The financial adviser informed him he could reduce the monthly benefit of his industry superannuation fund policy to $4,540 to have a total monthly benefit of $9,630, but across two policies.

He subsequently proceeded with this reduction on the assurance from the financial firm that he was covered for his current salary, which would be split across his existing policy and his industry superannuation fund insurance policy.

“I am satisfied that although there was no advisory relationship, the adviser still had a duty to act with due care and skill,” AFCA says.

“This would require the adviser to inform the complainant of the consequences associated with the reduction in any policy cover.

“Had the financial firm acted in line with good industry practices, the complainant would not have proceeded with the reduction to the monthly income benefit of his industry superannuation IP policy.

“Specifically, advice should have been provided that the complainant would not be insured for his total current salary across his two insurance policies.”

AFCA says if the complainant accepts the ruling, the financial firm is to provide compensation of $32,677.92 comprising of $24,698.53 of monthly benefit forgone due to the reduction to the super fund’s IP policy; $6,779.39 superannuation benefit payable under the industry superannuation fund policy; and $1200 for non-economic loss.

Click here for the ruling.