Stay at home parents and a glitch in TPD insurance

The arrival of a new child, either by birth, adoption or some other happy moment brings life-changing times to someone's life.

Baby proofing a home can feel like a never-ending job constantly scanning the horizon looking for risks to manage.

From putting soft pads on hard corners of tables, using soft door guards to keep little fingers from getting caught and moving everything below waist height that's bright, shiny and reachable.

Lots of things need to be moved around to make room for a new life - from furniture, family sleeping patterns and even moving some of your insurances currently held in your super.

With parental responsibility comes a potential change in finances for the growing household. So, it makes sense to better understand what needs to happen and what information new parents should know when it comes to their insurances.

'We had to move the gym out of the spare room to make way for the crib, move the pool table to the garage to make room for the change table and we had to move our TPD insurance out of our super fund into my own name, to make sure I could still make a claim if something serious happened as the stay-at-home parent.Tracy new mum to be and super organised

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Babies arriving daily by the numbers

• Each hour in Australia about 18 boys and 17 girls are born
• 65% of mothers are estimated to be aged 25 and over, and in some form of employment while pregnant
• 37% of expectant mothers, worked all the way until just one week or less before the birth of their child
• While the majority of stay-at-home parents are women, it's estimated 1 in 20 fathers are now taking primary parental leave
• In the private sector alone, 84,884 mothers and 33,306 fathers take parental leave each year

Maternity and paternity leave entitlements

In terms of work, most employees are eligible to take unpaid leave with an entitlement to return to their pre-parental leave position. If the position no longer exists, an alternative suitable position has to be made available that's nearest in status and pay, to the pre-parental leave position.

• For pregnant employees, unpaid leave can start up to 6 weeks before the expected date of birth, or earlier if both employee and employer agree.
• Under the Australian Government Paid Parental Leave Scheme, eligible employees who are the primary carer of a newborn or adopted child get up to 18 weeks leave paid at the national minimum wage and can be shared between both parents.
• These payments are made to the employer first, who then pays them to the employee.

Stay-at-home-parents and insurance entitlements

For parents who take on a stay-at-home primary parent role, there can be a number of critical changes which occur as a result of stepping away from paid work.

• One often overlooked change is the reduction in entitlements provided by a Total and Permanent Disability (TPD) insurance policy that's supplied by their super fund.
• Initially, having your super fund own your TPD policy on your behalf can be a cost-effective way of protecting you against the most serious of disability risks.

But for those people choosing to stop work and become the stay-at-home parent for their child, this decision can affect their ability to claim on their TPD policy if, when it comes time to claim, the policy is still owned by their super fund.

Special rules govern super funds releasing money early

Certain product features and benefits of insurance policies, held in super, need to meet the money release rules of the super fund before their benefit payments can be released.

When can a super fund release an insurance payout to its member?

The Superannuation Law limits insurance benefits from being paid out of a super fund;

... unless they are for the purpose of continuing (in whole or part) the gain or reward which the member was receiving before the temporary incapacity. [Regs 109 Super Industry Regs]

So if you’re not working when you claim, while the insurance company might pay a claim to your super fund, your super fund might be legally forced to keep it, unless you’re still working.

This is because some TPD policies are linked to the requirement for an inability to work in your own occupation or any occupation based on education, training or experience.

Pro Tip: If someone is no longer working full or part-time, its hard for a super fund to assess if you can't continue to work in your current occupation (because you currently have none).

Often the only option for the super fund in this position is to revert to a very high assessment standard of disability and decide whether you are so severely disabled to the extent you potentially have difficulty not being able to dress, bathe or feed yourself, without help.

The good news is it doesn't have to be this way.

With some advanced planning your financial adviser can move the ownership of your TPD insurance from your super fund back into your personal name.  This means if you’re to become the stay-at-home parent, you can still have full access to the full protection of a hight quality TPD insurance policy.

Get professional help on this one

Of all the things we move around and reorganise for the arrival of a new life into our family, this is one piece of financial furniture where you need to get some expert with.

So if you're expecting (maybe making a checklist of things to do), or perhaps you just found another risk to remove from your family, contact us to see if you need some of your personal insurances for a stay-at-home parent to be moved around for you.

Caveat: A special warning for people who have TPD insurance sold to them by their super funds. The TPD definitions used in policies offered by super funds are being arbitrarily changed and progressively watered down to reduce the chance of you being eligible to claim. Payments are no longer lump sum amounts but paid as smaller pensions style amounts with ongoing medical assessments and retraining.
Understand you get what you pay for so you can understand what you’re not getting too.

Data sourced: ABS, APRA, Fair Work Australia

Drew Browne is a specialty Financial Risk Advisor working with Small Business Owners & their Families, Dual Income Professional Couples, and diverse families. He's an award-winning writer, speaker, financial adviser and business strategy mentor. His business Sapience Financial Group is committed to using business solutions for good in the community. In 2015 he was certified as a B Corp., and in 2017 was recognised in the inaugural Australian National Businesses of Tomorrow Awards. Today he advises Small Business Owners and their families, on how to protect themselves, from their businesses.  He writes for successful Small Business Owners and Industry publications. You can read his Modern Small Business Leadership Blog here. You can connect with him on LinkedIn.  Any information provided is general advice only and we have not considered your personal circumstances. Before making any decision on the basis of this advice you should consider if the advice is appropriate for you based on your particular circumstance.