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Last Updated on 20 November 2019

October 1 Changes: Will You Lose Your Life Cover?



New superannuation laws go into effect October 1 2019, which will consolidate low-balance funds to help lower fees and premiums for members with multiple super accounts.

There is one major side effect of the change—members with ‘inactive’ super accounts may have their insurance policies cancelled. Ahead, we’ll take a look at the new bill, the changes, and who will be at risk of losing their life insurance.
 

Key Points
  • New changes to super funds go into effect October 1, which will likely result in the cancellation of life insurance policies held through inactive super accounts.
  • New changes to super funds go into effect October 1, which will likely result in the cancellation of life insurance policies held through inactive super accounts.
  • An inactive fund is one that has a balance of under $6,000 and has seen no activity for 16 months.
  • You can contact your trustee to prevent the loss of your life insurance under an ‘inactive’ super.

 

What Are the Superannuation Changes?

A bill passed by Parliament will go into effect on 1 October 2019, addressing the issue of low-balance and inactive superannuation funds from workers in Australia. The bill aims to consolidate inactive super funds into one account so that members can more adequately save for retirement.

The idea behind the changes is that people who have several low-balance super funds are paying fees across the accounts, essentially eroding their retirement fund. When 1 October hits, the Australian Tax Office (ATO) will automatically consolidate accounts with a balance below $6,000 that haven’t received contributions in the past 16 months.

These changes also mean that people with multiple super accounts will pay lower fees and fewer premiums. Low-balance accounts (less than $6,000) will have fees capped at 3%, and all super fund exit fees will be disallowed. It’s a change with the Australian worker in mind, but it comes with some potentially harmful side effects you should be aware of.

One result of the change is that people who have life insurance through their inactive super fund may be at risk of losing their cover. The life insurance policy will be cancelled, and you will no longer be able to receive benefits from it. This can often go unnoticed until the person goes to make a claim, only to find that they’re uninsured.

Who Will Be Affected By These Changes?

Having more than one superannuation account is relatively common. People switch jobs, open a second super fund with their new employer, and never roll over the funds from their previous super account.

Since this is the case, there are many people who will be at risk of losing their life insurance when October 1 arrives. Here are some of the common groups that might need to take action if they want to keep their life insurance policy through their super.
Those Who Are Between Jobs
Those who have left a job and have yet to find a new one may be at risk of losing their life insurance if they have multiple funds and one or more is a low-balance, inactive super fund.

You may have, for instance, lost or left your job without touching your super fund. If you haven’t accrued enough money in the account, it’s likely to be rolled into an existing active fund. This means that any life insurance policy in the inactive fund will be cancelled when the October 1 changes go into effect.

Those With Multiple Super Funds

Many Australians have multiple super funds without even realising it. This is the group that the new super changes are aiming to help. A single super fund means you’ll keep all of your savings in one place, pay fewer fees, and remove redundant premiums.

Members are often auto-enrolled into life cover through super, and that means paying premiums and fees. Anyone with more than one super account could be paying multiple life insurance premiums. If this is you, the October 1 changes to superannuation funds will save you some money every month, but it will change your life cover.

However, if you would like to keep your life cover or your super fund, you have two options. Your first option is to reach out and prevent the merge of your supers and the cancellation of your life insurance policy. The second is to review your options for life insurance through your active super fund.

The option that is best for you will depend on your individual circumstances, so make sure you know whether or not you’re at risk before October 1 hits.

Those On Maternity/Paternity Leave

Workers on parental leave with less than $6,000 in their super accounts will be at risk of losing their life insurance as well, and at a critical time. If you haven’t made any contributions to your fund in the past 16 months, it’s essential that you take steps to keep your life insurance through your super fund.

How To Prevent Cancellation of Life Cover in Super

Fortunately, these October 1 changes won’t leave everyone who has life insurance in an inactive super fund high and dry. There are a few steps you can take to prevent the cancellation of your policy, but you need to act before October 1.

Your super fund or previous employer should contact you if your life insurance will be cancelled and if your super fund will be automatically consolidated.

You will get an email or letter from your fund, alerting you of these changes. However, if you’ve changed addresses or contact information, the notification may not come so it’s wise to be proactive.

You must contact your Trustee via phone, email, or post to opt into keeping your insurance before October 1. They will confirm your decision, and you will be safe when the October 1 changes hit.

Proactively Consolidating Your Super

Maintaining multiple super funds can end up costing you, but not everyone knows that they have forgotten super out there.

To find a ‘lost’ superannuation account, you can use the Australian Tax Office (ATO) function of MyGov. Here are the steps you need to take in order to find and consolidate your super funds.

  • Sign in or create an account with My.gov.au
  • Navigate to the “Super” section, where you can see a list of funds in your name
  • Choose your transferring fund and receiving fund
  • Confirm your consolidation

The changes can take up to three days to process.

Life insurance through superannuation is an important piece of the life cover puzzle for many Australians, but it’s not the only one. Compare life cover with LifeInsuranceComparison.com.au, and find a better price on life insurance from our trusted panel of lenders.

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