If you’re one of those people who skim reads and immediately files letters from your superannuation fund providers, or worse completely ignores them, then now’s the time to take a renewed interest and act where necessary. As the title of this article suggests, not doing so could cost you and your family dearly.
New legislation means you have until 30 June 2019 to ensure life insurance within your superannuation fund/s (if you have it and need it) remains in place and is not cancelled.
In February 2019, the Federal Government passed legislation that requires superannuation trustees to:
- cancel insurance where a superannuation account has been inactive for 16 or more months;
- protect low superannuation balances by capping the level of fees that can be deducted; and
- allow for consolidation of multiple superannuation accounts that a person holds by transferring inactive low balance accounts to the Australian Taxation Office.
At first glance, this seems a sensible policy. The Government is concerned about the number of people who have multiple superannuation funds (approximately 39% of the 15.6 million Australians who have superannuation) and that their balances are being eroded with layers of administration fees as well as multiple default insurance cover that may not be required. This is often the case with younger people who have no children to provide for, no debt and have insurance cover in excess of what they need.
Who else may it affect?
For many people, the only life insurance they have is via super. It might be default cover from an employer or industry fund they no longer contribute to, or a dormant account left open specifically to maintain the insurance cover.
There are also those members who for various other reasons make no contributions to super over a 16-month period – expectant mothers, those taking extended parental leave, career breaks or, as we said earlier, people who simply don’t take sufficient interest in their superannuation from year to year.
The unintended consequences of automatic cancellation of insurance cover could have a devastating impact on members and their families. In a worst-case scenario, after the death of a loved one a family could find that the large life insurance payout they were expecting simply no longer exists. But even some of the lesser impacts can be substantial such as having to purchase new insurance when you’re now older, perhaps have a medical condition and suddenly find your premiums are much higher.
So it’s really important to make sure you do not inadvertently lose what cover you may already have.
What should you do?
Superannuation trustees will write to their members and ask them if they wish to elect to retain their cover so if the above affects you, please check your fund has your current address. If you don’t hear from your fund, don’t wait. Contact them immediately to determine if you’re affected.
Now is a good time to review your super and insurance
Here’s a checklist of things to consider:
- Do you have multiple superannuation funds?
- Do they all have your correct contact details?
- Do you know how much insurance you have in your superannuation and do you need it?
- Have you contributed or made a rollover into your fund/s in the last 16 months?
- How can you check if you have lost superannuation?
- Do you have other insurances in place outside superannuation (Life/Total and Permanent Disability/Income Protection/Trauma) and is it enough for your circumstances (or too much)?
But this doesn’t affect me
Great. You can happily let this new legislation bypass you. But please consider family and friends that might be affected and forward this information to them.
Please get in touch if you need any help.
More information on insurance held through superannuation and the cancellation of insurance on inactive accounts can also be found on ASIC’s Moneysmart website.
Brendan Fahy is a Director at Keep Wealth Partners.
Keep Wealth Partners Pty Ltd (AFSL 494858). This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different and you should seek advice from a financial planner who can consider if the strategies and products are right for you.