On 1 April hundreds of thousands of Australian workers will lose valuable life and disability insurance in their superannuation.
Under laws passed last year, if you have less than $6,000 in your employment super, any life, TPD and income protection insurance must be switched off unless you notify the fund before 1 April that you want to continue the cover.
In the current Covid-19 world, this is madness.
The law was introduced to prevent unnecessary erosion of existing small accounts but importantly included a notification process.
Funds had to write to members by 1 December 2019 and some have followed that up in early 2020.
However, the Coronavirus crisis has completely dominated the news cycle in the last two months and superannuation fund members are only focused on whether they can take out their superannuation to pay debts or to change investments to cash. They are not paying any attention to whether or not they should continue this insurance cover.
The whole notification process was designed to give members the opportunity to make an informed choice about their insurance and decide whether they want to continue the cover or not. However, it is clear that in the current climate, this is not going to be achieved and the switch-off date should be put back to give clear air to the issue.
Whilst the majority of Covid-19 deaths appear to be older people, the other big group at risk is people who may have compromised immune systems, which can afflict people of any age. If there are, as we are being told, thousands of people who may die-or become disabled-, a significant number will be of working age.
At a time when insurance benefits may be very important to support people afflicted by the virus or their grieving families, it makes no sense to remove the benefits, at least not without fund members’ active consideration.
Some group insurance policies do have pandemic exclusions, but most are anti-selection measures limited to claims for pandemic-related illnesses suffered within 30 days of the cover commencing. They are not general exclusions from cover.
Low income and vulnerable consumers make up a large share of small account holders and it is they who are more likely to need the insurance safety net if afflicted by the virus.
Some of the federal government’s reforms in this area, such as consolidating accounts and removing default cover for under 25’s, have been laudable. Further, the current treasury review of universal insurance terms and conditions should make insurance in superannuation better targeted and value for money e.g. by removing Activities of Daily Living (ADL) definitions from the small number of funds that still include them.
But the pause button needs to be pushed on removing insurance from small account balances.
*The announcement by the federal government to allow early access to superannuation (up to $20,000 within the next 4 months) will have an impact on the removal of default cover on small account balances. Withdrawals will drain small accounts and delay accounts ticking over $6,000 to trigger default insurance cover.
John Berrill is a partner at law firm Berrill Watson