Association of Superannuation Funds of Australia (ASFA) research has found about 5000 Australians have died without life insurance cover since 2019 and has estimated such cover could have been worth an aggregate $670 million a year to their families.
In addition, the study revealed close to 11,000 individuals each year are missing out on around $1.5 billion in total and permanent disability (TPD) benefits.
The industry body attributed these gaps to changes made to default superannuation insurance arrangements in 2019. To this end, the Protecting Your Super Package (PYS) reforms required the cancellation of insurance coverage relating to accounts that had been inactive for 16 months. Further, the Putting Members’ Interests First (PMIF) Act saw default insurance removed for members under 25 and those with balances less than $6000.
“I really feel for the families who’ve been caught by some of the unintended consequences of the PYS and PMIF legislation,” ASFA chief policy and advocacy officer James Koval said.
“These laws were meant to protect balances and that intent was sound. But the mechanism was too blunt. Insurance was switched off by default, often leaving people unaware it had happened.”
Insurance through super is an important life raft for many Australians and currently covers 9.3 million Australians for death benefits and 8.2 million for TPD. Many SMSF trustees maintain a small balance in a large super fund to keep the insurance cover such funds can provide.
The ASFA research highlights the scale of the unintended consequences of the legislation.
“The problem these laws were designed to solve, unwanted multiple accounts and balance erosion, has been largely addressed through other means. The data makes a strong case for revisiting whether the current settings are still doing more good than harm,” Koval noted.
ASFA is recommending extending opt-out insurance to all members aged 21 and over rather than 25, applying default cover to new full-time employees from day one rather than waiting for their balance to grow to $6000 and replacing automatic cancellation of cover on inactive accounts with an enhanced opt-out process.
