TPD Payout - Disbursement by Trustee into High Risk Funds Whilst Waiting A Decision

My daughter has had a TPD benefit paid by the insurance company to the super fund. The super fund took it upon themselves to disburse the money immediately into the very high risk areas she had her super money invested in when she was younger when she obviously had more time to ride out the waves of the fluctuating stock markets. She has now LOST money because of this whilst we are waiting for the trustee to make their decision. We thought the money was being kept safe until they made their decision.

Isn't it the trustee's duty to protect my daughter? And why didn't they contact her to ask her first so the money could be kept safe in cash before she draws on in shortly when the decision is made. It seems to me like they gambled with her T&PD payout, and there is also the spread between application price and redemption price which mean it was at a loss immediately. Given these uncertain financial times and that we have seen huge daily losses that can happen at any time, did they breach their duty of care? She can never work again and this money was certainly not to be risked. What can we do about this?

 

Thanks for your reply Sim!

Before I contact them I actually would like to get my facts together. Is it usual procedure what they did or should they have asked first whether she wanted it in held in cash until the decision was made? Just don't know what the norm is. I don't want to get on my "high horse" with them until I know that what they did was wrong, even though to me it doesn't seem logical.

Thanks again

 

Hi Mr Fix It,

Yes, this is the probably of master trusts compared to wrap accounts.
Master trusts work on a percentage allocation whereas wrap accounts work on a dollar allocation.

When did your daughter get paid by the insurance company? The market has been moving up since early March 2009.

If your daughter made an asset allocation she has instructed them on how to invest the funds and they followed her instructions. In an ideal world on a TPD claim the trustee probably should look at moving the asset allocation into more defensive assets until the member figures out what to do with the funds.

Buy/sell spreads are usually around 0.50% which represents the brokerage costs to move in and out of investments.

As Sim said the procedure is to make a written complaint to the trustee and then if you are not happy with their response you can take it to SCT.

Is there a financial planner attached to your daughters superannuation plan?

Cheers,

Dan

 

Thanks Dan!

I spoke with the trustees and they apparently made an error which they will fix. The insurance company only paid the money two weeks ago so she didn't want this to be in a volatile fund when it is for a short term period. You and Sim were both correct in talking to them and explaining the situation.

Thanks again!

 

Hi Mr Fix It,

That's great news that the trustee has fixed their issue.
Obviously now would be the ideal time to submit a new asset allocation request to the trustee to ensure that the funds are invested in line with what your daughter is more comfortable nowadays (as you said that the current asset allocation was set up a few years ago).

You have probably already gone to see a financial planner to see how you can make those funds last as long as possible.

Total and Permanent Disability (TPD) is extremely important and unfortunately doesn't get the attention it should. Everybody should review their insurances and try to maximise the amount of insurance, I'm sure your daughter is glad that she paid those monthly premiums over the years in case something did happen.

Imagine how different the situation would have been if she didn't have TPD insurance.

As we age things happen, whether environmental or genetic, once we pass the line of insurability then it is too late to get cover. This is also when we need it most as we know that our health is declining and the chances of something happen is higher than previously.

Just because you have a super fund, don't expect that you have enough insurance cover, the statutory minimum cover that the super fund has to provide is $75,000 for the youngest members and this minimum reduces over the years.

Review it before something happens!

Cheers,

Dan

PS Before making an insurance decision speak to your FPA registered Financial Planner.

 

I wanted to quote this because it's some of the best advice ever given on the forum. My suggestion to everyone that reads this is:

- check your insurance cover (inside or outside super)
- if it's not enough, go get more
- tell everyone who'll listen to do the same

I've been in the planning industry just over 4 years now and not one single client whose insurance I have reviewed had anywhere near close to enough to cover themselves. Unfortunately, most clients then look at the recommendations and move on.

Insurance is a double edged sword. We all curse the premiums every year, but who doesn't breathe a sigh of relief if the worst case scenario occurs? As Dan said, talk to your FP, but if you don't have one, go to a good insurance broker.