In February of this year, the Government enacted legislation restricting APRA-regulated fund trustees from offering insurance to members with inactive superannuation accounts unless otherwise instructed by the member. These changes affect SMSF accountants and their clients as they navigate the new rules surrounding insurance provisions in superannuation accounts.
It is common practise for many individuals with an SMSF to have a secondary APRA-regulated fund that provides them insurance.
This may be done for two key reasons:
- Access insurance policies are provided through significant superannuation funds, which are often cheaper.
- To keep legacy insurance policies which may offer better benefits or lower premiums than new policies, especially for older members.
In these circumstances, it is most likely that people holding these policies through an APRA-regulated super fund will consider their SMSF as their primary superannuation account and, therefore, receive all their contributions and rollovers.
It is usually the case that people will leave enough money in their APRA-regulated fund account to cover the cost of insurance premiums. Where required, they may roll over funds from their SMSF to their APRA-regulated fund or contribute to paying for insurance premiums and administration fees to keep their insurance policy.
Under the new legislation, you may lose your insurance coverage if your APRA-regulated fund is inactive because it has not received a contribution or rollover for 16 months.
On 1 July 2019, if your APRA-regulated fund is considered inactive for 16 months, your insurance will be terminated.
APRA-regulated funds had until 1 April to identify members continuously inactive for six months or more. Then they had until 1 May to inform those inactive members that their insurance would soon be switched off unless they elected to retain it.
We are concerned that insurance will be unknowingly closed for these accounts because members have not checked their correspondence, especially for those who rely on this insurance held separately.
This could devastate policyholders or their beneficiaries if their insurance coverage were unknowingly terminated. Furthermore, trying and access insurance at a later stage of life may be highly difficult or costly.
So what can you do?
If you wish to maintain your insurance coverage, you should consider taking advice, depending on your circumstances, about the following steps as soon as possible. This includes either:
- Providing a direction to your APRA-regulated fund that you wish to ‘opt-in’ for your insurance coverage to be maintained.
- Making a contribution or rollover to your ‘inactive’ APRA-regulated fund so that the period your fund starts to be inactive is reset. However, it stressed that you also ‘opt-in’.
As always, with superannuation, do not treat the above as advice. You will need to consider your personal circumstances and take advice from the relevant licenced person before deciding.
Kreston Stanley Williamson Team
*Correct as of September 2019
Disclaimer – Kreston Stanley Williamson has produced this article to serve its clients and associates. The information contained in the article is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas in this article, you must seek advice about your circumstances. Liability is limited by a scheme approved under professional standards legislation.