SMSF fund members who hold life insurance in an Australian Prudential Regulation Authority (APRA)-regulated fund are at risk of losing their cover if they fail to make a contribution before new legislation comes into effect from 1 July, the SMSF Association has warned.
Association chief executive John Maroney said failing to do so could have a devastating impact on policyholders or their beneficiaries if their insurance cover was unknowingly terminated.
“It may be extremely difficult and costly to try and access insurance at a later stage. It is therefore imperative that SMSF members wishing to maintain their life insurance cover do so now by giving direction to their APRA-regulated fund that they wish to opt in,” Maroney said.
The legislation, enacted in February, states that from 1 July, APRA-regulated fund members with inactive superannuation accounts for 16 consecutive months would lose their insurance cover unless they gave direction to the fund that they wanted to opt in. An APRA-regulated fund that has not received a contribution or rollover in the same period would be identified as an inactive fund.
APRA-regulated funds had until 1 April to identify members who had been continuously inactive for six months or more and by 1 May had to inform them they would lose their life insurance cover unless they chose to opt in.
“The other option is to make a contribution or a rollover into the ‘inactive’ APRA-regulated fund so that the period when a fund starts to be inactive is reset, but even if this approach is adopted, we recommend that SMSF members opt in,” Maroney said.