Each year, more than $500 million in life insurance claims is estimated to be paid to Australians with “inactive” superannuation accounts.
In an effort to protect consumers with inactive superannuation accounts, the government is introducing Protecting Your Superannuation laws, which are intended to protect Australians from paying for unnecessary insurance cover.
While the policy intent is to protect consumers, there can be adverse consequences for those who don’t realise their account is inactive, and assume their insurance cover will continue.
AIA Australia CEO Damien Mu said it was important that everyone is aware of the changes to ensure that families are not left without life insurance.
“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,” said Mr Mu.
Mercer Australia’s CEO, Ben Walsh, is in support of the new government regulations; however, he understands the potential consequences of the new legislation.
“The changes are a step forward in protecting members from unnecessary balance erosion. They address the duplication of insurance fees resulting from multiple accounts, protect small balances and save young people from paying insurance coverage that they may not need,” said Mr Walsh.
“Insurance in super, however, can also be a valuable benefit for many members and there are some who may be negatively impacted as a result of unintended consequences brought about by the changes, such as members who have intentionally left their super savings in an ‘inactive’ account to retain access to a specific insurance coverage,” said Mr Walsh.
How to prepare for the changes
To ensure they are protected, AIA and its partners have launched a click, check and protect initiative to provide Australians with the necessary tools and information they need to better understand their cover, and to determine their needs.
“We understand that members can sometimes be less engaged with life insurance based on over-optimism about their risk, or apathy, which is why default insurance in superannuation is by far the most sustainable system for mass consumer protections, benefiting everyone in society by providing cover to all,” said Mr Mu.