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.