Which disability test does your super insurance use?

You are probably insured already

Super funds add default life and TPD cover to many accounts and take the premiums out of the balance each month. Nobody sends a bill, so many people never learn they are paying.

The law now limits this. Cover stops on accounts with no contributions for 16 months, and new members under 25 or with a balance under $6,000 must ask for it. Everyone else in a default fund usually has it.

Two tests

A TPD claim pays a lump sum if you can never work again. How the insurer decides that depends on a definition in the policy, and in 2019 the Australian Securities and Investments Commission (ASIC) found two very different kinds in use.

• The ordinary test asks whether you can ever work again in a job suited to your education, training or experience.
• The "activities of daily living" test asks whether you can feed yourself, wash, dress, use a toilet, or move about. You must be unable to do several of these.

The second is not a work test at all. Someone who will never hold a job again, but can still dress and feed themselves, fails it.

ASIC reviewed TPD claims across nine insurers. Its findings:

Finding	ASIC, Report 633 (2019)
Claims declined under the daily-living test	60%, three in five
Claims declined under all other TPD tests	12%
People covered by the daily-living test	nearly half a million
Who they mostly were	casual workers and people in high-risk jobs
Claims assessed this way	almost three a day
Claims withdrawn before a decision	about 12.5%

The cover that refused most claims fell mostly on the workers least able to argue.

Has it been fixed?

Partly. ASIC returned to the issue in 2021 and in 2023. By 2022 most of the 15 trustees it examined had changed or removed restrictive definitions. ASIC still told trustees to watch the outcomes of claims assessed under them, and to consider whether removing them, or funnelling fewer members into them, would serve members better.

So the test still exists in some policies. The only way to know about your own is to ask.

What it would cost to remove

ASIC did not price the fix. Here is a rough sum from its own figures, with the assumptions shown so anyone can change them.

• Almost three claims a day is about 1,000 a year.
• At a 60% decline rate, 400 are paid. At the 12% rate, 880 would be. That is 480 more paid claims a year.
• Assume an average payout of $120,000 (our assumption; default cover varies by fund and age). 480 × $120,000 = $57.6 million a year.

Halve or double the average payout and the answer moves in proportion. Spread across the millions of Australians who already hold TPD cover through super, it comes to a few dollars each a year.

Another way to run disability cover

The Netherlands shows a different design. When a worker falls ill, the employer keeps paying at least 70% of wages for up to 104 weeks, and both sides must work on a return to work. After two years, a government agency, the UWV, assesses how much earning capacity the person has lost. People fully and permanently unable to work get about 75% of their former wage; partial loss gets a partial benefit.

Two features matter. The body that decides is not the body that pays, and the benefit is an income scaled to the loss, not a single lump sum that is either paid in full or refused. There is no cliff to fight over.

The wider cost of default super

The Productivity Commission's 2018 inquiry found that about 10 million accounts, a third of the total, were unintended duplicates, costing members $2.6 billion a year in extra fees and insurance. At least 1.6 million accounts sat in underperforming default products, which could erode nearly half a member's balance by retirement. It found duplicate insurance alone could cut a balance by more than $50,000. It put the gain from fixing duplicates and underperformers at $3.8 billion a year.

What you can do this week

1. Ask which test you are on. Ring your fund and say: "Is my TPD cover assessed under the ordinary definition, or under activities of daily living or daily working?" Ask them to put it in writing.
2. Find your old accounts. Your myGov account, linked to the ATO, lists every super account in your name. Each one may charge its own fees and premiums.
3. Decide about the cover. If you hold TPD cover in two funds, you may only need one. If you are on the narrow test, weigh whether it is worth what you pay.
4. If you earn under $47,488 (2025–26), an after-tax contribution of $1,000 earns the maximum government co-contribution of $500. It phases out at $62,488. The ATO pays it automatically.
5. If a claim was refused, take it to the Australian Financial Complaints Authority (afca.org.au). It costs you nothing.