A policyholder who did not understand that a total and permanent disability payment reduced his death cover has lost a dispute over the matter.

Disclosure of the linked TPD and death cover was unclear and misled the policyholder, but the correct premiums were charged and there is no indication the man experienced any financial loss due to these failings, the industry ombudsman says.

The complainant bought combined TPD and death insurance through his superannuation in 1988 and in 2005 applied to increase his death cover to $400,000.

The TPD cover remained at $300,000 due to a medical disclosure.

The insurer paid out on the TPD cover in 2023 and the death cover was reduced to $100,000.  

The complainant told the ombudsman he thought his death insurance would remain at $400,000 and the linked nature of the covers was not explained to him.  

The Australian Financial Complaints Authority says the terms of the group life insurance policy were clear. The trustee, IOOF Investment Management, provided a product disclosure statement in 2005 and the man signed to show he had read and understood it.

However, the PDS did not explain the reduction in death cover if a TPD payment was made.

An AFCA ombudsman agrees with the complainant “that a layman reading the PDS would think death and TPD cover means individual insurance cover for both events. Accordingly, I am satisfied that it is more likely than not the complainant was misled about the linked nature of the death and TPD cover and believed that he had individual cover amounts for both death and TPD.”

Nevertheless, the trustee’s “reduction in the level of death cover following ... the TPD payment was in all the circumstances fair and reasonable”.

Read the determination here.