Insurance in super
Insurance may be prohibited/cancelled where a member's account becomes inactive
From 1 July 2019, trustees of a MySuper or choice fund are prohibited from providing insurance where:
- the member's account has been inactive for a continuous period of 16 months or more, and
- the member has not made a valid written election to obtain or maintain insurance.
For the purposes of this measure, a member's account is inactive if the super fund has not received a contribution or rollover in respect of the member. If a fund receives an amount in respect of the member, the period of inactivity is reset.
A trustee of a super fund is required to notify a member once their account has been inactive for 9, 12 and 15 months, giving the member an opportunity to take steps to maintain their insurance cover if they wish.
Despite these new rules, a member's right to be covered by insurance is unaffected until the end of the period for which premiums have been charged or the expiry date of the fixed term of the member's existing insurance contract.
If a member does not provide a written instruction to maintain insurance, their cover will no longer be provided after the later of 16 months of inactivity or the expiry of a period of cover for which the member has paid or the expiry date of the fixed term of the member's existing insurance contract.
If the provision of insurance in an inactive account ceases, and the account has a balance of less than $6,000, the account may be considered an 'inactive low-balance account' which must be sent to the ATO.
Electing to obtain or maintain insurance in an inactive account
To obtain or maintain insurance cover, members with accounts that become inactive for a continuous period of 16 months will have to either:
- contribute or roll over an amount to their superannuation account prior to 16 months of inactivity to reset the inactivity period, or
- submit a valid election in writing to their super fund prior to 16 months of inactivity.
If the member with an inactive account for 16 months does nothing, their insurance will be cancelled. 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 the member submits a valid written election to their fund, this only has to be done once. The election will apply even if the member's account is inactive for a continuous period of 16 months in the future.
When the new insurance rules do not apply
The rules prohibiting the provision of insurance for inactive members do not apply to:
- SMSFs or small APRA funds
- defined benefit members
- Australian Defence Force (ADF) Super members (or a person who would have been an ADF Super member if they had not exercised choice)
- members whose employer makes contributions to a fund on their behalf in addition to superannuation guarantee obligations, which cover the full costs of the member's insurance premiums.
|Further proposals relating to insurance in super
Two insurance measures were introduced in Treasury Laws Amendment (Putting Members' Interests First) Bill 2019, but had not been legislated at the time of writing. The Bill has lapsed due to the May 2019 Federal election being called.
The additional proposed insurance measures would, from 1 October 2019:
Last modified: Wednesday, July 24, 2019