Call to reverse insurance inside super rules
Changes to the superannuation fund rules six years ago have all but wiped-out automatic life insurance cover for young people and the situation needs to be reversed, according to the Certified Independent Financial Advisers Association (CIFAA).
Reacting to recent a recent report from the Council of Australian Life Insurers that only about half of people aged under 34 have life insurance, CIFAA president, Chris Young said it represented a terrible statistic.
He noted that changes to superannuation fund rules six years ago, all but wiped out automatic life insurance cover for young people joining superannuation funds.
The changes being referred to be CIFAA is the so-called Protecting Your Super legislation which came into effect in mid-2019 under the former Coalition Government.
The changes applied to all member accounts with a balance less than $6,000 and for members under 25 years of age. In most cases, members of compulsory employer schemes were the most affected.
“This a terrible statistic that leaves those with the greatest need for life insurance, very exposed if there’s a tragedy that affects a family member,” Young said.
Most superannuation-based life insurance policies pay out on the death or total and permanent disability of a fund member.
“In many cases, the only substantial liquid asset a deceased or permanently disabled member has, is their superannuation. Before the change, that amount was usually boosted by tens of thousands of dollars, thanks to insurance,” he said.
“On many occasions where our members have been asked to assist with the death of a young person, superannuation life Insurance made a big difference. Leaving behind a partner or worse still, a young child with very little in the way of assets, is financially devastating. That only adds to the grief.”
Young noted that under the current rules, a person must opt-in to take out life insurance cover within a superannuation fund. A return to the rules which applied six years ago, would see all new members automatically insured for a pre-defined amount, with the premiums deducted from the super fund balance.
For a 25 year old white collar worker, death and total disability cover of $100,000 would cost less than $1 per week.
While the nature of superannuation life insurance means that most applicants will be accepted up to pre-set maximum limits, the significant drop-off has also meant that the changes have contributed to premium increases.
“Life insurance is all about risk. As you get older, the risk of the insurer having to pay-out increases. If most of the remaining members with life insurance are older, that necessarily means the premium pool needs to reflect that higher risk and premiums go up.” Young said.
While it would be great if young people had more insurance, there is no compelling reason for this to be part of superannuation. It was in the past, due to many superannuation products being developed by the life insurance industry who bundled them together.
But superannuation and life insurance are ultimately different things, serving different needs. Life insurance should be progressively removed from superannuation, not reinstated.
Sure, the personal insurance industry has become a total basket case due to bad regulation and insurer mismanagement, and this has led to widespread underinsurance, not just for young people. But that needs to be fixed by addressing the problems that caused it, not by bastardising superannuation.
What a marvellous concept… except 80% of working Aussies ( at a reasonable guess) don’t have the free cash flow to fund insurance personally. Insurance within super addresses this, but yes, at a longer term cost. That’s compelling enough reason.
Except you forget the whole “it won’t happen to me” attitude prevalent in almost everybody, and the warped view, “insurance companies don’t payout,” where people won’t see value in obtaining cover. Now mix that with cash flow pressures and I can guarantee your “idea” would be a catastrophic reduction in life insurance across the country with huge implications on social security.
We have found it more economical and have received better coverage as compared to the Super fund by being insured for Death & TPD cover with a seperate insurer who is unrelated to the super fund.
Can I just that this was a really dumb piece of legislation by Hume. I am sure there will be a class action against the government at some stage down the track when a lot of 18–25-year-old building apprentices have been maimed or killed in workplace accidents and have no savings, no super and no life/TPD insurance (but would have except for this legislation).
This underinsurance problem is set to become the next Trillion dollar tax burden for the rest of the country. With the imbeciles we currently have running the country handing out welfare and NDIS dollars hand over fist I am concerned that the next generation of under insured will end up blowing up disability funding in this country. There seems to be very few checks and balances on who can get money from the government coffers at the moment. Unfortunately this is set to get worse as our socialist government keeps getting voted back in probably because of this very reason that many people now live and exist on the tax dollar. Albo loves to spend our money, and unfortunately is quite happy to let debt spiral out of control to feed his spending addiction. The lack of insurance will hit us hard over the next ten years where many are simply uninsured and they are also majority renters. Some will be saved via the great wealth transfer from parents or Grandparents, but the remainder will be heavily dependant on Government handouts of which will need to be reigned in. This is where the great financial divide will really become evident. We will have 2 distinct classes in this country, and there will be no turning back. Between now and then the government will need to do two things. 1/ Fix the underinsurance problem they have created, and 2/ Start to properly tax resource and corporates in this country.
Here’s a staggering statistic. Australia receives only $2 Billion a year in taxes and royalties from the sale of its Gas. Yet individuals pay the following taxes/levies (i.e. Income tax, CGT, Land tax, Super contributions tax, GST at every level of purchase(layered), Medicare Levy, Road Tolls, Rates, Fuel Excise, Company tax, Stamp Duty, Fringe benefits tax, Lump Sum Super tax(death tax to non-dependant beneficiaries, School Fees, University Fess, the list goes on & on).
Qatar citizens in stark comparison sell less gas than Australia collect $76 Billion in taxes and royalties. There citizens pay no Income tax, no CGT, no GST(or VAT),no Corporate taxes, they receive free school and University education. In comparison we also have a myriad of other resources that also pay little or no tax. Their Government also provide land grants and interest free loans to build to their young people, all funded by Gas & Oil tax & royalties.
Its absolutely ludicrous that this country is in debt given our resource rich base, but the solution is obvious. This information is a little off the main topic, but clearly relevant to the bigger problem(i.e. an Inept Government with damaging policies when it comes to personal insurance and spending).