May 28, 2019
You may have a small inactive superannuation accounts that was set up purely to take out or maintain life insurance. Often the reason for retaining these types of accounts is because it may not be possible to obtain similar insurance cover elsewhere due to age or health reasons. Some of these covers may soon be cancelled if no action is taken.
The recently legislated Protecting Your Super package includes insurance changes that aim to protect retirement savings by encouraging people to evaluate their insurance cover. It includes measures to prevent inactive accounts from being eroded by inappropriate insurance arrangements.
In summary, the new legislation stops super funds from providing insurance to members with inactive accounts, unless the member has made an election to retain insurance cover. An account will be considered inactive, for insurance purposes, if no contributions or rollovers have been received for a continuous period of 16 months.
The new rule becomes effective from 1 July 2019, but also applies to insurance arrangements that were in place before that date. Times of inactivity prior to 1 July 2019 will count toward the 16-month period.
If you have a superannuation account that is considered inactive, you should have by now received a letter from your super fund advising you of the steps to keep your insurance in place. These include:
- Contributing an amount to your super account;
- Rolling over an amount into the inactive account from another super account;
- Making a valid written election to maintain the insurance.
Importantly, contributing or rolling over an amount will only rectify inactivity for a maximum of 16 months, when the account would again become inactive if no further contributions or rollovers have been received.
Alternatively, if you submit a valid written election to your fund this only has to be done once and can be made regardless of whether the account is currently inactive. With this in mind, some may wish to submit a valid written election even if their account is not currently inactive to ensure that their insurance cover is maintained in the event that their account becomes inactive for a continuous period of 16 months in the future.
When you receive the notification from the trustee of your inactive super fund, it would be wise not to ignore this letter, as there is the risk that any existing cover could be cancelled as soon as 1 July 2019.
While the recent changes represent a level of inconvenience, we would encourage you to see this as an opportunity to review your insurance needs. If unsure, you should consider seeking professional advice in this area.