This week I take a look at what has happened since the Protecting Your Super legislation came into effect on 1 July 2019. Particularly in relation to the cancellation of insurance that has resulted.
As the name suggests, the protecting your super legislation was designed to protect your super savings from being eroded if you have a low account balance of $6,000 or less. This does have implications for insurance cover through super. If you hold insurance through a super account that has become inactive, the insurance is automatically cancelled.
Insurance through super is not available if your account is inactive unless you advise the super fund that you wish to retain the insurance.
An account is considered inactive if no contribution or rollover is received by the fund for 16 months.
The super fund will let you know in writing of their intention to cancel your insurance before taking any action, with the ability to complete a form to keep your insurance cover. However, many of us (myself included), may not always be the best at acting when it comes to snail mail. We all tend to expect to receive our communications digitally.
So, what has the outcome of this new legislation been in the last year? Not surprisingly, a 20% reduction in insurance held in super has resulted over the past 18 months.
An optimist might think that all of those Australians with inactive accounts carefully considered their insurance needs and decided that it was no longer needed. But the $304 billion per annum level of underinsurance in Australian families probably suggests that they have had their insurance cancelled unknowingly, or let it cancel without properly understanding its importance.
And by the way, that estimated $304 billion per annum level of underinsurance (source KPMG) is just against disability. It doesn’t include the impact of little to no life/death insurance.
What perhaps wasn’t considered by the Government and super funds alike, is that there are many Australians who in fact keep their accounts open with small balances purely for the benefit of insurance, where they may not be able to obtain insurance elsewhere (perhaps for medical reasons). For whatever reason they may have moved accounts, joined an employer plan, started a self-managed super fund (SMSF), but they have kept an old account open for the insurance, given it's not always possible for the insurance to be transferred.
We’ve always known that there is a large gap when it comes to underinsurance in Australia, but default insurance within super played its part in helping close that gap – now in reality we are starting to see that work being undone.
For those of you who do actively keep a super account open for this purpose, please always be mindful of the point at which it is likely to be considered inactive, and look out for that communication that you want the insurance to continue! Better yet, it's always advisable to check in with the Risk & Insurance team at Hewsion Private Wealth to enure your insurance is in order.
Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email firstname.lastname@example.org or visit www.hewison.com.au
Please note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.