Posted on 20 May 2019
If there has ever been a time to read the fine print, it’s now. Australians are being warned the insurance they hold through their super accounts could be cancelled thanks to recent reforms.
From 1 July 2019, super funds will be required to cancel insurance cover in accounts which have been inactive for 16 consecutive months, unless the member contacts the super fund and elects to keep the insurance or makes a contribution to the super account.
This means you may be at risk of losing cover for total and permanent disablement (TPD), death and income protection
Slater and Gordon Superannuation Principal Lawyer Annemarie Gambera said all super account holders should be aware of the changes and act promptly on any notifications from their super funds about retaining insurance.
“It’s vital that anyone who receives notification that their super account has been inactive or is at risk of being inactive for 16 consecutive months, takes action by contacting their super fund to make sure they elect to keep their death and disability insurance, so it doesn’t get cancelled,” Ms Gambera said.
“This is especially the case for anyone with multiple super accounts. An account is inactive if it has received no financial contributions for 16 months or more.
“We are advising clients to be aware of the upcoming changes and to ensure they understand the super insurance policies in each of their accounts might offer different benefits so it’s best to check what qualifications and criteria they’ll need to meet to access the insurance.
“It’s always best to check this before making the call to roll your accounts over into the one fund.”
Ms Gambera said it was especially important to retain your super insurance if you are yet to make a claim or if you have made one and you’re awaiting the decision to be made by the insurer.
“If your insurance is cancelled you may lose the right to make a claim,” Ms Gambera said.
While the Banking, Superannuation and Financial Services Royal Commission has focused on consumers being overcharged for unnecessary fees and “junk insurance” by the industry, you want to make sure you’re not losing the ability to make a valid claim.
“There’s junk insurance and then there’s insurance that will actually protect you if something happens so it’s good to understand the difference,” Ms Gambera said.
“You don’t want to inadvertently cancel all your super insurance.”
Slater and Gordon Superannuation Senior Associate James Hunter said losing your super insurance could have catastrophic consequences if you are injured, become ill and lose your income after not being able to work.
He said it was best to speak with a financial adviser and compare the benefits and costs of each of the insurance policies in your superannuation, and to review the value of life insurance benefits before you consolidate multiple super funds into one.
“You should receive a letter in the mail from your fund, possibly an email or text message, asking you to confirm that you wish to continue to receive insurance coverage,” Mr Hunter said.
“You will need to tick the box and sign the letter before returning it, or pick up the phone and speak with your superannuation fund to make a valid election.
“You should also seek financial advice to ensure your superannuation and insurance is right for you.”
The “Protecting Your Super” reforms were introduced into the Australian Parliament in February this year.
In a positive move, a three per cent cap on annual fees for low account balances less than $6000 will also come into play from 1 July 2019, to prevent account balances being eroded by high fees.
“It’s important that people get in touch with their super fund, understand their rights and check if their working situation still allows them to meet the criteria and requirements to receive the insurance provided by their fund,” Mr Hunter said.
“Make sure that if you are employed, your super fund is receiving regular contributions and that you are across what the insurance provided by your fund actually offers you.”
Superannuation account holders should inform their funds if they wish to opt in to insurance by 30 June.
“Phoning them to confirm you need insurance when you receive the letter may be the fastest way,” Mr Hunter said.
Slater and Gordon provided a submission to the Treasury regarding changes to superannuation within the Productivity Commission in 2018.
Submissions were also provided to and accepted by the Banking, Superannuation and Financial Services Royal Commission.