Checked your super? You might not be covered for life insurance
In September of last year, the government passed legislation to make life insurance an opt-in inclusion for super funds holding less than $6,000 and for new members under 25. With the economic impacts of COVID-19 dominating financial news in the last few months, you may not have realised these changes came into effect on April 1.
The new laws aim to weed out inactive super accounts – smaller amounts which haven’t received contributions for over 16 months – so they can be consolidated with current funds. This aims to stop members paying duplicate insurance premiums and help them find unclaimed cash. The opt-in condition for new members under 25 encourages them to avoid taking a blanket approach to life insurance which may cost more in the long-run.
While this is being done with money-saving intentions, it could spell bad news for many, as more than 70% of Australians with life insurance hold policies through their super fund.
For example: imagine you’ve got a low balance super account that’s inactive for over 16 months because you haven’t been working. Your insurance could be cut if you’ve forgotten to opt-in, meaning you can’t claim on standard super life insurance cover including death, disability and income protection.
Before you get on the blower to your super fund, let’s assess the details of the changes and if they might impact you. Then we’ll investigate whether life insurance through super or a direct provider is the best choice for you.
Will I be affected by these changes?
If you keep track of your active fund balance and it’s over $6,000, and if you’re over 25, then no. For fund members who think the recent changes may impact them, take note that exceptions apply.
The cancellation of insurance for under 25s only refers to new members joining a fund after the April 1 legislation change. So if you’re 23, signed up to a super fund and have been making contributions prior to that date, you’ll still be covered. If you are under 25 and just opening a fund now, you’ll need to opt-in for life insurance if you want the cover.
Don’t stress if your super balance is currently under $6,000 – this doesn’t mean you automatically lose your life insurance. The fund has to be inactive for 16 months for this to happen automatically. And as long as your balance can cover the insurance premiums, you can still opt-in to maintain coverage if your contributions have been on pause for that period.
Chief Executive Officer of NobleOak Life, Anthony Brown says there are some similarities between the two in terms of coverage conditions. Although, he says direct insurance generally allows for more specific coverage suitable to each individual’s needs.
“Like direct insurers, some superannuation funds offer members automatic acceptance cover, where full details of health, occupation and pastimes don’t have to be provided when applying. Some of these policies include pre-existing medical condition clauses, meaning you may not be covered if these conditions are related to a claim,” says Brown.
“And like NobleOak does as a direct insurer, some super funds allow members to apply for cover where full underwriting happens during the application process and no pre-existing condition clauses apply.”
Brown says it is possible to hold both kinds of cover, but you should consider what’s covered through each, the costs of both, and if one policy might offset the other.
“For example, income protection through a direct insurer will generally offset any other income protection a person may hold, should a claim occur. Also, extra coverage such as own occupation TPD insurance – when you’re insured if you can’t continue work in your specific chosen field – is only available outside superannuation.”
Your next steps…
If you think you fit the bill and your life insurance has been cut off through your super fund, your first step should be to determine if you need life insurance. If you do, then contact your superfund to see what type of insurance is on offer, the level of cover, any pre-existing condition exclusions, and how much it’ll all cost in premiums. If you’re happy to stick with the policy through your super, ask to opt-in.
If not, it’s time to investigate other life insurance options.