The Federal Government should not be automatically removing superannuation insurance from potentially vulnerable people next month, during COVID-19 uncertainty, according to national law firm Slater and Gordon.
Australians have been warned the insurance they hold through their super accounts will be cancelled if they do not ‘opt in’ to be covered for death, total and permanent disability (TPD) and income protection cover, thanks to recent reforms.
From 1 April, default insurance is due to be cancelled automatically if you are under 25 years old, or you had less than $6,000 in your fund (as at 1 November 2019), or if your account has been inactive for 16 months or more, as part of the Federal Government’s ‘Putting Members’ Interests First’ and ‘Protecting Your Super’ reforms.
Slater and Gordon Principal Lawyer Annemarie Gambera said some people still had not taken action and during these uncertain times, it would be difficult to expect people to contact their super fund and elect to receive standard insurance cover.
“When people are facing financial uncertainty or the potential of being ill, they need to ensure they have access to these benefits in case they lose the ability to work,” Ms Gambera said.
“While the Banking, Superannuation and Financial Services Royal Commission has focused on consumers being overcharged for unnecessary fees and junk insurance by the industry, people need to understand why it’s important they are not losing the ability to make a valid claim.
“Losing your super insurance could have catastrophic consequences if you are injured or become ill and at risk of losing your main source of income after not being able to work.
“Many people under 25 are studying or working in casual roles in hospitality, retail and tourism, and may need to access income protection or make a workers’ compensation claim if they find themselves out of work for weeks at a time if they contract the virus.”
Ms Gambera said the most vulnerable people in our community including people with existing health conditions, single mothers and migrant workers with low balances may find themselves without the cover they need in the event of a death from the virus, job loss or permanent injury from the virus.
“We believe the changes scheduled for next month should be delayed until after the COVID-19 threat has passed so families don’t miss out on insurance if a loved one were to die after contracting the virus,” she said.
“This is a good time to check that you have super insurance, and if you would be eligible to access the insurance available to you in your account. There’s junk insurance and then there’s insurance that will actually protect you – if you are eligible to access it – if something happens so it’s good to understand the difference.”
The advice is to contact your super fund before the end of the month (31 March) to opt-in.
Ms Gambera said for those who do not act and opt-in, the only other alternative would be to wait until the balance reaches $6,000 for the first time, or the individual turns 25, provided they are receiving regular contributions.
“Last year the Federal Government began rolling over account balances to the ATO if the balance was lower than $6000 or inactive for 16 consecutive months as at 1 July 2019, under the ‘Protecting Your Super reforms’. Everyone was asked to ‘opt in’ to the insurance to continue being covered in the case of injury or illness and not everyone did,” she said.
“The changes were announced to ensure super accounts with low balances were not eroded by insurance premiums and fees and to ensure inactive accounts were rolled over to the ATO where they would be combined with super accounts people were actually using, to avoid people paying multiple premiums.”