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Superannuation savings insurance

With so many people doing it tough following the bushfires, there has been some debate around whether people who’ve lost their homes should be able to access their superannuation early.

It is hard to see the point of holding onto thousands in savings in your superannuation fund, if you can’t feed your children, provide accommodation or send them back to school with the books, stationery, uniforms and other resources they will need.

It’s worth understanding the consequences of draining your super account to invest in something as significant as rebuilding your life now. Doing this could cause you to lose all insurance benefits available to you via your super membership. This is the insurance available to you via your superannuation fund, which not many people think about.

Income protection, Total and Permanent Disability (TPD) and life insurance, trauma insurance or terminal illness cover, might be available to you depending on your policy. This sort of cover is supposed to provide you with insured benefits in case you are injured or ill and can no longer work.

If there is no money in the superannuation account balance to pay the insurance premiums, the cover will lapse.

If you are no longer working because you’re unemployed (your workplace burnt down and the business is not operating right now, for example) and your superannuation contributions stop, you may lose your rights to the insurance benefits through super.

There are very limited circumstances when you can access your superannuation early. Specifically, these are:

  • Severe financial hardship

  • Terminal medical condition

  • Temporary incapacity (disability or injury)

  • Super account balance is less than $200

  • First home super saver scheme

  • Compassionate grounds (trauma or crisis)

When we are acting for clients for superannuation insurance matters, it’s not unusual for them to seek to access to their super early via financial hardship.

Imagine being severely injured, with an acquired disability as a result of a car accident or workplace injury, having no income coming in but having to wait three to six months to access your TPD benefit. This is typically the waiting period prescribed by the policy of insurance during which a person must be out of work before they can even make a claim.

Superannuation is supposed to be money you can live on in your retirement years. No one should have limited funds heading into retirement after a lifetime of work and this is why superannuation exists.

But given the current state of emergency many find themselves in, it may make financial sense to access at least some of the super account balance now.

Check with your super fund and read the policy before applying. It’s best to seek advice from a financial expert before deciding whether to access your super earlier than planned.

Deciding to drain your super account, and to build it up again later in life, will not necessarily mean that if you are older and fall ill, that you will have less TPD or income protection or life insurance available to you. It’s dependent on the insurance arrangements which the super fund has in place.

However, an insurer may be unwilling to offer the same amount of cover to an older person, as it may consider them to be at greater risk of making a claim against the policy. There may also be issues with pre-existing medical conditions which may limit the applicable cover.

Given the tension between accessing your super now and leaving it there for your retirement, it is worthwhile to consider alternative solutions for emergency relief funding, such as the Federal Government’s one-off and ongoing disaster relief payments for affected individuals and businesses, for immediate access to cash.

The contents of this blog post are considered accurate as at the date of publication. However the applicable laws may be subject to change, thereby affecting the accuracy of the article. The information contained in this blog post is of a general nature only and is not specific to anyone’s personal circumstances. Please seek legal advice before acting on any of the information contained in this post.

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