Recently, the Federal Government introduced the ‘Protecting Your Super’ package. Part of this package addresses the insurance that many Australians hold within inactive super accounts. Put simply, an inactive account is one where no contributions or withdrawals have been made for 16 continuous months or more.
The new laws are designed to ensure that members are not paying for insurance cover that they do not know about or paying premiums and other fees that inappropriately diminish their retirement savings.
From 1 July 2019 super providers must cancel the insurance in any super account that’s considered inactive, unless the client specifically elects to retain it.
You may be assisting a claimant through an illness/injury compensation claim. It’s possible that their injury or illness will lead to a claimable event under the insurance benefits held through their superannuation fund (Total & Permanent or Temporary Disability, Terminal Illness or Death). If your client loses the insurance provided by their super fund due to inaction, and they do not meet the definition of the claimable event until after this time, they will not be entitled to that benefit.
John, an employee engineer aged 56, has two superannuation accounts – one which he has been contributing to for some time (fund one) and another associated with a previous role (fund two), which has been inactive for five years. Both funds have some default Death, TPD and Income Protection insurance, with the premiums being deducted from the fund on a monthly basis. John has been unable to work over the last six months due to evolving mental health issues. John is claiming income protection benefits from both funds. Because John is not working, SGC contributions into fund two have ceased. John continues to see his GP and a psychologist – his treatment plan including an aspiration to return to work at some stage.
Fast forward to 1 July 2019 – John moved house two years ago and neglected to update fund one with his new address. He did not receive the notification from fund one asking him if he would like to elect to retain his insurance. Because the fund has been inactive for 18 months, they automatically cancel his insurance. Because his disability arose before this time, will be able to continue claiming on his income protection benefits until the end of the benefit period (two years).
Fast forward to May 2020 – John is still unable to work. He hasn’t worked since November 2018. Fund two sends him a notification that his fund is now considered inactive and his insurance benefits will cease unless he elects to retain them. Because John hasn’t been feeling very well, he hasn’t opened the mail. His insurance benefits lapse. Because he has now been on income protection benefits for two years and both policies had a two year benefit period, income replacement payments end.
Fast forward to December 2021 – John’s GP and psychologist now, and only now, believe it is unlikely John will ever return to work. Because John’s TPD benefits have ended and the TPD trigger event has only now occurred (in this case, two Dr’s providing this opinion) he will be unable to claim on any previous TPD benefits held, even though they were held when the initial illness was diagnosed.
Your client needs to understand all superannuation accounts held. They can do this via the ATO lost super search in the MyGov portal.
They then need to understand what insurance is held and the specific requirements of each fund to retain the cover (this may be via the online portal, or by a signed letter). If relevant, they need to make this election prior to the cancellation date (in a lot of cases, this will be 01 July 2019).
MCP Lawyers Life specialises in helping legal professionals with their unique personal insurance requirements.
MCP Lawyers Life provides personal insurance advice to legal practitioners that allow them to make smart, well informed decisions on income protection and life insurance matters.
Advice and solutions relate to product selection and policy structuring to ensure that coverage is held in the most optimal cost and tax efficient manner and that in the event of an illness or injury event, adequate coverage and access to financial support is straightforward.
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