But while insurance in super can represent good value, it is important that individuals know what insurance cover they have to make sure it fits their needs and to keep track of insurance cover included with default superannuation.
Duplicate insurance policies
During your working life you are likely to have several employers pay compulsory superannuation contributions on your behalf to a number of default funds, and consequently you may end up with duplicate insurance cover.
According to the recent Productivity Commission draft report Superannuation: Assessing Efficiency and Competitiveness, an estimated 17 per cent of members have duplicate policies across multiple super accounts. Additionally, some members are being defaulted into insurance products they are ineligible to claim on (sometimes referred to as ‘zombie’ policies). The chief and costly culprit for such ‘zombie policies’ is income protection, which can typically be claimed against only one policy and only when members are working.
The impact of duplicate insurance policies are worse for members on low incomes, especially those with intermittent participation in the labour force who continue to have premiums deducted from their accounts while not contributing to their super.
To address this, the Government, in their recent Federal Budget, announced plans[i] for insurance in default superannuation plans to be offered on an opt-in basis (instead of an opt-out basis) for:
- members with balances of less than $6,000;
- members under the age of 25 years; and
- members whose accounts have not received a contribution in 13 months and are inactive.
These proposed changes are intended to protect the retirement savings of young people and those with low balances by ensuring their superannuation is not unnecessarily eroded by premiums on insurance policies. The changes will also reduce the incidence of duplicated cover so that individuals are not paying for multiple insurance policies.
Importantly, these changes will not prevent anyone who wants insurance from being able to obtain it - low balance; young and inactive members will still be able to opt-in to insurance cover within super.
It is important to keep in mind these changes will only apply to default insurance, and not insurance that you have taken out based on advice received from your financial adviser.
Speak to your financial adviser today to discuss your insurance options.
 Subject to legislation being passed.