MLC Life Insurance has called for changes to default disability cover offered via superannuation after research showed current arrangements do not provide the protection people need.

Nearly half of Australian workers have no more than three months’ earnings saved in the event of a disability that prevents them from working, with almost one-third of women having only one month of savings, according to the research commissioned by MLC.

In the event of an injury or illness, 57% of the 1025 survey respondents say they would prefer a steady stream of income over a lump sum from their insurance providers.

There is no legal obligation for super funds to provide income protection insurance and many fund trustees are becoming less inclined to provide such products by default, leaving many people to rely on total and permanent disability cover should they fall ill or become injured, MLC says.

With total and permanent disability insurance, a lump sum benefit is paid if an insured is permanently unable to return to work, but it takes an average of two-and-a-half years from the date a member becomes disabled to lodge a claim.

“If we consider the average claim assessment time, this means members are waiting an average of three years to receive a [total and permanent disability] payment,” MLC says.

“According to our recent survey ... 46% of consumers surveyed have less than three months of savings if they were to become disabled. This raises a critical question: how are members surviving between this three-month period and the potential three-year wait for a total and permanent disability payment?”

MLC Life Insurance CEO Kent Griffin says the current approach to disability insurance in super is centred on a binary assessment of total and permanent disability.

“While it works for some, the evolving needs of members and changing nature of disability requires a debate about the most appropriate default disability insurance system that meets these needs.”

Click here for more on the research.