People may or may not be aware that significant changes are due to come into effect from 1 July 2019, potentially affecting millions of Australians' insurance benefits contained within their superannuation.
While the Treasury Laws Amendment (Protecting Your Superannuation Package) Bill 2018 effectively introduces new laws designed by the Government to reduce scheme costs and to protect people from paying unnecessary fees and insurance premiums, the effects could be quite catastrophic for superannuation policy holders if not properly considered.
Many superannuation policy holders may be unaware that they have various types of life insurance coverage within their superannuation.
The primary types of life insurance cover provided through superannuation include:
- Death cover (also called life cover) — which pays a lump sum upon the member's death, to the member's beneficiaries or dependants.
- Total and permanent disability (TPD) cover (also called permanent incapacity cover) — which typically pays a lump sum if the member becomes totally and permanently disabled and can no longer work in their current occupation or another occupation for which they are reasonably qualified.
- Income protection insurance (also called salary continuance cover) — which pays a regular income for a period of time (usually up to 75% of previous income for up to two years) if the member cannot work in the short term because of illness or injury.
One of the most significant impacts is that if a superannuation account has been inactive for 16 months or more as at 1 July 2019, then a member's insurance within that policy will be automatically cancelled. An account is inactive if it has not received any money (contributions or rollovers) for 16 months or more. This effectively means than an account will be inactive if it has received no contributions or rollovers since 1 March 2018.
The impact of this is that any total and permanent disablement, income protection or death benefit insurance would be cancelled, meaning that they would have given up potentially substantial insurance benefits designed to cover the member or their loved ones for tragic and unforeseen disabilities or even death.
Prior to seeking legal advice, a lot of our clients do not even know that they may have this cover within their superannuation, meaning that there is every chance that the impacts of these changes will not be fully realised by the millions of Australians potentially affected by these amendments until it is too late.
Especially given recent changes to CTP insurance coverage and workers compensation within New South Wales significantly reduce the compensation available to injured motorists and workers in the majority of circumstances, it is imperative to ensure that people are properly informed about their potential insurance benefits through their superannuation and covered in the event of an unanticipated incapacity.
Another effect is that inactive and low balance accounts ($6,000 or less) will also be transferred to the ATO by 31 October 2019 rather than with their superannuation fund.
The most significant benefit to members is that if their superannuation balance is less than $6,000 they will not be charged more than 3% in administration and investment fees each year, while exit fees are no longer permitted.
We strongly suggest that anyone who thinks they may be adversely affected by these legislative changes contact either their superannuation fund directly or visit www.timetocheck.com.au.
There is a strong concern that many Australians are unware of these changes and the time for them to opt in is very tight.
Research by the Association of Superannuation Funds of Australia has indicated that more than half of Australians are unaware of the changes to their life insurance and total and permanent disablement cover.
If you believe you may be entitled to a total and permanent disablement benefit or a loved one or relative who has tragically passed away, we suggest that you contact Carroll & O'Dea in order to investigate any potential rights through this insurance cover.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.