PPRuNe Forums - View Single Post - What is the best loss of license cover in Australia?
Old 20th Dec 2015, 00:08
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Gen. Anaesthetic
 
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Mutual benefit funds are not as safe as people like to think

Hi All,

Buzzy, your comment about insurance companies is both factually and anecdotally incorrect. In fact there should be more concern about the MBF than Comminsure or other insurers. And to be clear they are all a little bit different so be careful you compare with a bit of context in mind.

Firstly, the MBF is not insurance, even though it does everything it can to make it look like insurance. It makes it very clear in the documentation, and nor would it want to be, or else it would be subject to the same draconian laws that exist for insurance companies. Without all those compliance costs it can keep its overheads low and the amount of red tape down. That said, those draconian laws that apply to insurance companies provide consumers with the best legal protection in the world. Australian insurance law, while large and unwieldy, has consumer protection in mind more than any other jurisdiction in the world. That being the case, organisations like the MBF and the VLF (Vorsicht, they are both mutual funds) have relatively little legal protection for consumers and leave it up to the integrity of those running the show. To date it would seem by the stories we hear here and elsewhere that the MBF pays its members as and when appropriate, but there have been stories in the past of mutual funds descending into a horrible mess due to ignorance, greed and corruption. I'm not suggesting the MBF is anything like that but just be aware that anything is possible. And just so you know, ASIC does keep an eye on these organisations to make sure they are playing by the rules but at the end of the day their power - and yours if you ever need to litigate against the MBF - is limited.

It's an interesting fact actually, that to qualify as a mutual fund rather than an insurance company, an organisation must not carry on their business as if it was an insurance company. Sounds like an obvious statement, but the essential element of an insurance company is that it is obligated to pay the insured upon the triggering of an event. Consequently, organisations like the MBF are therefore required to make that payout discretionary or else they turn themselves into an insurer and subject to all those horrible rules (Check out the Insurance Contracts Act if you are up for some fun reading!). Organisations like the MBF tread a thin line here and there is more to this, but in short, ASIC is ok with how these guys operate. It seems to me though it would always feel a bit like skating on thin ice. The scary scenario is where one day ASIC decides that the MBF (and others) is actually an insurer and requires them to set themselves up accordingly. All that extra cash they have might suddenly disappear! It is a a very real possibility btw, so don't dismiss it.

For those who are not fans of insurance, a little education always helps understand how it works. Firstly, don't lie or misrepresent when you apply for your insurance, or else all that money that you pay in premiums may one day amount to nothing when you submit a claim. If you play by the rules when buying insurance and you are granted the cover, the insurance company has little option but to pay you out eventually as long as you have operated in good faith throughout the process. They may deny the claim initially but this will usually be part of the game that they play. The law is on your side. And know for what you are being covered! Obvious statement, but people often get a surprise when their claim is denied..

Furthermore, to use the Comminsure example, the total amount they pay out, even though it is intalments as Vorsicht points out, is far larger. Last time I looked, the MBF total was $550,000, whereas Comminsure will pay out $2 million. For me, I would much prefer to have the latter! And when you consider that many employers will pay some or all of the premium cost, to me it's a no brainer; I'll go with Comminsure every time even though the premium cost is higher (my employer pays a good chunk of the premium).

As for the anecdotal evidence, I know several people who have insurance with Comminsure and it has saved their bacon. One of those is a close friend who was diagnosed with severe depression about 15 years ago. He hasn't been able to work since and is still receiving insurance payments. Of course he hates being in this situation and is doing everything he can to get back to work and Comminsure is helping with that as well. I also nearly used it a few years back after an accident that left me a bit broken up. Comminsure were great in their handling of the situation but in the end I didn't go down that path for several reasons.

Hope that helps. I'm not suggesting people go either way specifically, but it does concern me that the conversation is fairly unbalanced out there on this subject and not always supported by a strong understanding of the facts.

Last edited by Gen. Anaesthetic; 20th Dec 2015 at 00:45.
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