Inactive Funds and Insurance Cover

New superannuation laws take effect on 1 July, and they have huge implications for any of you who have life insurance inside your super fund. From that date superannuation funds will be prohibited from providing insurance cover to a member whose super account is inactive, unless that member elects to keep their cover. For the purposes of these rules, an account is considered “inactive, if it has received no contributions or rollovers for 16 consecutive months.

If your account is inactive, and you have not notified the fund that you wish to keep your cover, the fund is required to automatically cancel or insurance cover in your account.

If you want to keep your cover, even if the account is inactive, it’s important to advise your fund before 30 June. Keep in mind that 30 June falls on a Sunday so you would need to act by June 28.

The new rules coincide with the start of a new financial year, so grab the opportunity to get both your superannuation and your insurance in order. This is the perfect time to amalgamate your superannuation if you currently have multiple accounts. Use the ATO online services through myGov.

But it’s most important to carefully analyse any insurance you may have in those funds if you are considering amalgamating them, because, in most cases, you will lose the insurance currently held in any super accounts you move to a new fund.

I well remember the case of a woman whose husband became terminally ill. To save fees she consolidated his four superannuation accounts, and in doing so lost $400,000 of death cover.

The purpose of insurance is to help the family cope, if one or more of the breadwinners become injured, or too ill to earn a living. But insurance has a cost – if you are over insured you are wasting money, and if you are under insured you are leaving yourself open to serious risk.

I suggest you take this opportunity to sit down with your financial advisor, or insurance agent, and go through your insurance needs in detail. Then you can decide whether your insurance needs to be reduced or increased. Also be aware that TPD insurance does not have an own occupation clause if it’s inside super. This is why it’s normally better held outside superannuation.