From 1 July 2019, as part of the Protecting Your Superannuation Package legislation, superannuation funds will cancel insurance on inactive accounts. The new laws are aimed at addressing people who hold multiple low-balance accounts which are no longer receiving contributions, but which have premiums for default insurance continuing to reduce the balance.
The rationale for the legislation is reasonable – improving retirement balances and tackling duplicate or unnecessary cover. The unintended impact, however, is that many workers may be left either uninsured or inadequately insured.
What is an inactive account?
An inactive, low-balance account is defined as one which hasn’t received a contribution for 16 months or more.
Employees may end up with multiple inactive super accounts when they open a new account with a new employer but forget to rollover the funds from their old one. The old accounts are no longer receiving contributions, but ongoing premiums for default insurance cover continue to deplete the account balance.
There are also times when super contributions temporarily stop due to career breaks, health issues or periods of maternity/paternity leave. In these cases, account holders risk losing out on necessary cover if the insurance is cancelled.
What if I want to keep the insurance cover on an inactive account?
Your fund is required to contact you if your insurance is about to end however we suggest doing a review of your superannuation and insurance needs before this occurs.
You may want to keep your insurance if you don’t have any through another fund or insurer and you have a particular need for it. In this case it is worth taking steps to keep it so you are not left with inadequate provisions should you require it.
If you would like to keep the default insurance in an inactive fund, there are several options available to you:
- instruct your fund that you wish to maintain your insurance
- make a contribution to the super fund account
- rollover another super fund balance into the super fund account
- make or amend a binding beneficiary nomination
Check your life insurance cover before consolidating super funds
Before consolidating or switching funds, we recommend making sure your new fund will provide the death, TPD or income protection cover you require. If you have a pre-existing medical condition or are aged over 60 you will need to be particularly careful as you may need to pass certain medical checks. It is important to seek independent financial advice if you are unsure.
If you’d like to know more about how this new legislation affects your retirement savings or insurance cover, please speak to your Marsh & Partners advisor.
If you are not currently a Marsh & Partners client, and do not have access to an advisor with expertise in this area, our specialist superannuation team are able to assist. You can contact us for a chat about your needs on (07) 3023 4800 or at email@example.com.
GENERAL ADVICE WARNING: This information has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs. We suggest you obtain specific financial advice from a licensed financial advisor.