October 2020 Newsletter
Insurance within super
Is yours still active and the best option?
Hello, this is Emmalee here from the In Your Interest Financial Planning Team, writing the newsletter for a change as there was something I wanted to bring to people’s attention. At the end Christoph provides a deeper understanding of the situation.
One of my roles is looking after our clients and their insurance reviews and renewals so it is an important subject for me.
I had a conversation with a friend the other day, who mentioned that their relative had gone to make a claim from an insurance policy they thought they had within super, only to find the policy had been discontinued within the past 12 months.
If this applies to you and you would like to reinstate your cover, you could either contact your super fund to see if this is still easily possible or talk to us on 1800 332 225
In the above situation, the relative contacted the super fund and looked back through previous correspondence and discovered what seemed to him a relatively small reference in relation to the need to opt in to keep his insurance, which he had not noticed at the time.
Based on the situation described, this person would have been very likely to make a successful claim had their insurance remained active.
Recently, legislation, including Putting Members’ Interests First (PMIF) and Protecting Your Super Package (PYSP), has been implemented so that super funds with low balances (under $6,000) or that have not received contributions for some time, require action to ensure that insurance within super remains in force.
Additionally, individual super funds may have their own rules around when a member’s insurance can be cancelled.
In both of these instances you will be contacted by your super provider to inform you of the upcoming changes or to provide you with an opportunity to opt-in to keep your insurance active.
It is said that the intention of these changes is to make sure members’ super balances are not reduced by the cost of insurance that they may no longer need.
However, there may be several situations where this legislation could catch people out and they could lose their insurance without being aware.
One case could be because when people move homes, they may not think to update their postal address with their super fund. In this case had they been sent the opt-in letter to retain their insurance they may have not received it.
Another reason is people get busy and may not always read correspondence from their super fund in detail (though we would recommend you do) meaning that unless you are notified in a very obvious fashion you may not be aware that you need to opt-in to keep your insurance. This was the case with my friend’s relative.
Thirdly, because this legislation requires an opt-in instead of an opt out, many people’s insurance may be cancelled simply because they didn’t get around to opting in or they forgot to go back to read the letter.
As a financial planning business, we personally contact our superannuation clients when we receive notifications from superannuation providers about opting in requirements. However, many super providers (especially industry super funds) do not support the inclusion of advisors on super accounts and/or do not always notify advisors of all correspondence that is sent to clients. We will not be notified at all unless we are the advisor listed on your account.
I highly recommend that you ensure we have your correct and up to date contact details in case we do need to contact you for any reason, including changes to your policies or accounts that are initiated by the providers.
As always feel free to contact us for any assistance and we are always here to support you and if needed provide a complimentary review of your insurance and/or investment policies whether you are a new or existing client.
Emmalee Benhayon Lyons
Client Services and Support
Cert III Business Admin
A lot of people have or had multiple super funds and paid a minimum fee and insurance premiums. This means their retirement savings were rapidly eroded by those fees and insurance premiums.
On the other hand, a lot of people rely on their insurance inside super and actually want and need it.
Most of these people only had one superannuation account or, at least, insurance in only one superannuation account. The government could have protected most of these people – who should not have lost their insurance cover – by making one further provision in the legislation: “No change at all for all those who are over 25 and who only have insurance in one fund.”
The government did not do so.
The reason? It would have been a very big job just to identify those people who only have one fund, let alone those who have multiple accounts but insurance in only one.
Therefore the government took the sledgehammer approach and terminated all insurance policies of those who are under 25, had less than $6,000 in their super fund and those who hadn’t contributed to their fund for 16 months, regardless of their age and the size of that fund. The only way to keep such cover was to contact the super fund and specifically opt in.
The government knew that this would cause a lot of harm to many people who would inadvertently lose their cover but after the royal commission the mindset was very much towards making sure people did not spend money unnecessarily and people being harmed by losing insurance when they needed it appeared to be considered less important.
If you are under 65 and you think you have insurance through your super fund, please check if you still do. If you have relatives who are under 65, you could forward this newsletter to them or email them yourself.
You are also of course very welcome to contact us or pass on our details to any friends or relatives so that we can support with this important issue. We can review your situation at no charge and in many cases are able to offer an alternative insurance option that is better suited to your needs. The last thing you want is to be in the situation of Emmalee’s friend’s relative.
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