By Peter Kelly on 20 November 2019
It is common for superannuation funds to provide insurance to members of their fund.
In fact, for many people, the only life and disability insurance they may have is the insurance in their superannuation account.
In March 2019, the federal parliament passed legislation1 to prohibit super funds from continuing to provide insurance to individual members where a member has an “inactive” account.
An inactive account is an account where there has been no contribution or rollover into the account in the previous 16 months. A member with an inactive account can proactively elect to retain their insurance cover even though their account is inactive. This is referred to as “opting in”.
This change took effect from 1 July 2019.
While this change intends to help prevent life insurance premiums eroding superannuation balances, this is a double-edged sword.
As a result of this legislative change, we believe that many thousands of Australians have lost valuable insurance cover. And this problem will continue to grow as accounts become inactive, and insurance cover is cancelled unless the member opts-in to retain their insurance.
Phase Two – impacts to younger workers and lower balances
To complicate matters, the parliament has recently legislated2 further restrictions on super funds providing insurance to their members.
These most recent changes apply to two types of member:
1. Members under 25, and
2. Members with a super account balance of less than $6,000
When a member under the age of 25 first joins a super fund on or after 1 February 2020, the superannuation fund will not be able to provide automatic insurance cover on an opt-out basis. Opt-out simply means that the super fund automatically provides the insurance and if not wanted, the member needs to request to have the insurance discontinued proactively.
Providing insurance cover on an opt-out basis will also no longer be available for members who have not had a balance of more than $6,000 since 1 November 2019.
In both instances, members will be required to opt-in to receive insurance coverage. There is no change to insurance cover for current members under 25 who have super account balances more than $6,000.
The exception - a dangerous occupation
Super funds can continue to provide insurance on an opt-out basis for members employed in a “dangerous occupation”.
A dangerous occupation is an occupation that the Institute of Actuaries specifies as being in the riskiest quintile of Australian occupations. This includes those hazardous jobs like construction, emergency services and other like jobs.
For a super fund to be able to rely on the dangerous occupations exemption and continue to provide insurance cover for members on an opt-out basis, the super fund will apply for an approval to continue to provide insurance for those members,
At the time of writing, superannuation funds are in the process of determining those members that had a super balance of less than $6,000 as at 1 November 2019. They are required to write to those members by 1 December informing them that their insurance cover will be cancelled from 1 April 2020 if the balance is still under $6,000 and the member has not opted-in to retain their insurance cover.
Superannuation can be an appropriate place to hold life and disability insurance cover. However, it is not suitable for everyone. When reviewing existing insurance and determining the best place to hold that insurance – whether inside or outside super – it is important to consider several important aspects including who the likely beneficiaries may be, the insurance benefits required, and the appropriate sums insured.
For those who may be impacted by the above changes, it is worthwhile speaking to a financial adviser on how these changes impact you now and what you may need to do if your circumstances change in the future.
Like many things in life, some money spent on getting appropriate advice is often money well spent.
 Treasury Laws Amendment (Protecting Your Superannuation Package) Act 2019 (Cth)
 Treasury Laws Amendment (Putting Members’ Interests First) Act 2019 (Cth)