As July 1 approaches, some self-managed superannuation fund members are scrambling to ensure life insurance policies held through an APRA-regulated fund aren't suddenly cancelled.
With the Government's Protecting Your Super Package about to kick in, the SMSF Association is warning SMSF trustees to check the status of any super fund memberships they may hold as a means to accessing group life insurance.
The association said it was concerned for SMSF members who deliberately hold membership with an APRA-regulated fund in order to obtain life cover through the fund's group life scheme.
Often these funds hold small balances and are not regularly contributed to. The Government's PYSP reforms will see super accounts deemed inactive for 16 months in a row automatically relinquish their life cover, unless the member specifically directs otherwise.
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The association is warning members to indicate their desire to opt-in to remain covered.
SMSFA chief executive John Maroney warned SMSF members of the significance of losing access to life insurance those with insurance through an APRA-fund to take action.
The association is worried some SMSF members will lose their life insurance cover because they have not checked correspondence from their APRA fund or contributed to it, he said.
"This could have a devastating impact on policy holders or their beneficiaries if their insurance cover is unknowingly terminated. Furthermore, it may be extremely difficult and costly to try and access insurance at a later stage," Maroney said.
"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."
The association also recommends SMSF members actively opt-in even if they planned to make a contribution or rollover into the APRA-fund to reset the period of inactivity.
The SMSFA's warnings come as life insurers warn the public at large to check they won't be left without life cover after July 1. This week AIA launched a campaign advising Australians of the potential impact of the changes, amid fears many are unaware of their existence.
AIA chief executive Damien Mu said default insurance in super was "by far" the most sustainable system for protecting Australians, and added it was "simply not the case" that all members with an inactive account are without insurance needs.
"It is estimated that more than $500 million is paid in claims to inactive members each year," Mu noted.
"Our concern is that a large majority of impacted members won't be aware of these changes until it's too late, only discovering that they are uninsured at their time of greatest vulnerability after a serious event has occurred."
Integrity Life distribution general manager Suzie Brown also weighed in, agreeing with Mu that some Australians would be blindsided by the changes.
"There are Australians who may not be aware of how the upcoming changes to life insurance within super will affect them and their ability to financially protect themselves or their loved ones when they need it most," Brown said.