Insurance Opt-in for Under 25’s and Low Balance Accounts

There’s been a lot of news lately regarding Superannuation changes, for example how your retirement savings might get eroded by inappropriate insurance and what government is doing to protect you.

With all the changes and technical jargon thrown around, it’s understandable that many members are left confused. This article aims to clarify what you need to know about the opt-in option, when it will take effect and the possible consequences.

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About life insurance held inside Superannuation

Generally, upon joining an Australian Super fund, you’ll receive default life insurance and TPD coverage. Insurance inside your Superannuation gets automatically added, and premiums are deducted from your Super contributions.

Insurance through Super helps many people to get insurance coverage which might not otherwise have been possible, due to restricted finances, health problems or dangerous occupations. On the other hand, your fund becomes the policy owner of your insurance, meaning they control it and you need to meet all the conditions of release as defined under the Superannuation Industry Supervision (SIS) act before a benefit will be released.

You should also be aware that premiums paid from your fund can lead to the possible erosion of your retirement savings and the type of insurance options that are available inside Super are restricted.

What does insurance inside Super cover?

  • Life insurance: Pays a lump sum death benefit to your Superfund when you pass away or get diagnosed with a terminal illness. After that, the benefit is generally released to your nominated beneficiary,
  • TPD cover: Provides a lump sum amount should you become totally and permanently disabled because of an illness and injury and are unlikely to ever work again in Any occupation that reasonably suits your experience, education or training. Own occupation TPD is not available through Superannuation.
  • Income protection insurance: Pays a monthly benefit of up to 75% of your regular income if you are temporarily incapacitated and unable to work due to a sickness or accident. Take note; income protection might not be available from all Super funds and the features are usually limited.

Trauma insurance that protects you against a list of critical illnesses is not available through Superannuation.

Putting Members’ Interest First Act 2019

The Treasury Laws Amendments Act 2019, referred to as the Putting Members’ Interest First bill, aims to protect certain members from the potential erosion of their retirement savings. These members include:

  1. People under the age of 25 and
  2. Those with a low balance account ($6,000 or less).

The above Super members will thus no longer have life insurance automatically added to their fund but will instead need to actively opt-in to receive such protection.

When will the bill come into effect?

The opt-in insurance option for under 25’s and low balance accounts will take effect from 1 April 2020. However, this amendment does not apply to members who work in dangerous occupations that need life insurance. If you’re working in a risky profession, you’ll be required to provide details of your job in order to keep your default insurance.

Your Superfund should communicate these new arrangements to you by 1 December 2019, so you have enough time to make an informed decision. If they have not sent you a written communication about these changes by the deadline, you’ll need to contact them and request clarification regarding whether you’re eligible for the opt-in insurance option.

Example of the Putting Members’ Interest First bill

Justin has a Super account balance of $5,200 as of 30 November 2019. He has only been able to make small, infrequent contributions because of financial constraints. Justin was not even aware that he had default life insurance and TPD cover inside his Superannuation because he never properly read through the documentation.

Justin’s fund has provided him with a written notification that as of 1 April 2019, he can decide if he wants to continue his default insurance, where the Super fund pays his premiums from his $5,200 balance (opt-in). Alternatively, Justin can choose not to opt-in and instead review his insurance requirements with the help of a broker.

Now is the time to review your insurance

If you’re under the age of 25 or have a Super balance below $6,000, you might want to take this opportunity review the insurance coverage you have with your fund and determine if it meets your requirements.

Life frequently changes, which is why it’s so important to review your life insurance coverage, at least annually. Events that might trigger a review, include:

  • Buying your first home or moving to another property,
  • Getting married,
  • Starting or growing your family,
  • Changing jobs, and
  • Retirement

People that choose to have insurance outside of Super, generally do so because the coverage provided inside Superannuation does not suit their stage of life and they want to maximise the potential of their retirement savings, by not having their accounts diminished due to premium payments.

If you’re not sure if your insurance inside Super meets your requirements, then it might be a good idea to speak with an insurance specialist or start comparing policy prices and features online.

Author: Russell Cain
Published: November 12, 2019
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