Think Twice Before Opting Out

Headlines like ‘super members being short-changed billions every year’ are common in the media at the moment.  While this might sell papers and provide interesting BBQ banter, sometimes there is more to a story than just a clever headline.

An inquiry by the Insurance Superannuation Working Group in 2017, found that insurance premiums were eroding some retirement nest eggs of young Australians who tend to accumulate multiple super funds. Under new proposals, which some super funds have already implemented, Australians under 25 will be asked to opt-in if they wish to retain insurance policies currently automatically offered to them within their superannuation fund.

It is very important to be aware that upon joining many superannuation funds, customers are automatically given an element of insurance protection. Importantly, it is free of all medical underwriting at the time of joining. For some people, this can be the only insurance cover that they will ever obtain, due to their poor health circumstances or family heath history which could prevent them from applying later in life.

As many clients of FB Wealth Management would understand, it is not easy to secure insurance cover at standard rates without any exclusions. Our concern is that many younger Australians will not be aware of the importance of the actual coverage they have within their superannuation fund. There are also many commentators advising that the insurance is unwarranted at this age. However we would strongly disagree. In particular, this age group can be more likely to take on riskier pursuits and pastimes in life.

An important element of cover within the superannuation fund is called total and permanent disablement cover (TPD). It is this particular cover that is generally a godsend to families after their young ones suffer a tragic accident. It is a lump sum payment that allows access to medical treatments that may not otherwise be available to them. Alternatively it may also allow them to modify their living accommodation to better cope with their new disability.

While we can see the merit of what is trying to be achieved, we fear that this action may actually lead to a greater underinsurance issue in Australia. It is more than likely that letters will be sent to all superannuation members under 25 asking them to reconfirm that they are happy to maintain their insurance. If, as is the case in many houses, this letter stays on the kitchen table unopened for 3 months, the individual may suddenly find themselves uninsured.

Australians currently have the option of “opting out” of their insurance cover. Surely this is much safer and avoids the dramatic financial impact a family will suffer if their child suffers a horrific accident and their TPD insurance is not in place at the time as they had not responded to a letter?

We urge all clients who have multiple superannuation funds to seek informed professional financial advice before taking any action to consolidate funds, as you may risk losing valuable insurance that you simply may not be able to attain elsewhere.