Changes to insurance in super
The latest Federal Budget included some proposed changes to superannuation, particularly in relation to insurance provisions.
It is worth noting that more than 70% of Australian life insurance policies are held inside of super.
Since 2013, and the introduction of MySuper, super funds have been obliged by law to provide a minimum level of insurance cover within their default product. This is because despite the peace of mind insurance offers and its potential to support people and their families through the toughest of life circumstances, many remain under-insured and don’t make a conscious decision to take control of their insurance arrangements.
Super funds typically have three types of insurance for members:
• Death cover (also known as life insurance) - pays a benefit to your beneficiaries when you die, either as a lump sum or as an income stream
• Total and permanent disability (TPD) cover - pays you a benefit if you become seriously disabled and are unlikely to ever work again
• Income protection (IP) cover - pays you an income stream for a specified period if you can't work due to temporary disability or illness
Your employer's default super fund must offer a minimum level of life insurance, depending on your age, and you can usually increase, decrease, or cancel your default insurance cover.
One of the key concerns or criticisms of this arrangement is that the cost of insurance premiums is deducted from your super balance, which reduces the money available to be invested for your retirement. These deductions have a greater potential impact for super accounts with lower balances.
From 1 July 2019, the government has proposed changing the insurance arrangements for certain categories of super members. Firstly, insurance within super will move from being a default (automatic) inclusion, to be offered on an opt-in basis for people aged under 25. Insurance cover will also be removed for members of a fund who are deemed ‘inactive’, meaning they haven’t received a super contribution for 13 months or more, or for members whose account balance is less than $6,000.
While the details of the proposed changes are still to be finalised, the simple message is that regardless of your circumstances, taking control of your insurance arrangements
and reviewing them regularly is important. It makes sense to ensure you are making the most of the insurance options available through your super, and that you have an optimal level of cover for your particular needs.
This article contains general information only and has been prepared without taking into account your financial objectives,
situation or needs. It may, therefore, not be right for you. Before you make any investment and/or insurance decision, we
suggest you consult the relevant Product Disclosure Statement and/or seek licensed financial advice.