Commencing 1 July 2019, as a result of Government legislation, clients with insurance in superannuation accounts will have their insurance cancelled in the following circumstances:
- The account hasn’t received a contribution or rollover in the prior 16 months, and
- The member hasn’t specifically elected to retain the insurance in their ‘inactive’ account through a written notification.
Insurers will send letters to affected clients explaining the reason for ceasing to provide their insurance benefit.
From 1 July 2019, inactivity notifications will be sent directly to clients from institutions when they reach 9, 12 and 15 months of continuous inactivity (i.e. no contributions or rollovers received) to inform them that their insurance will be cancelled if their account remains inactive for a continuous period of 16 months UNLESS they elect to keep it.
The problem though is that many individuals have a standalone superannuation account with their insurance provider that has a $0 account balance (examples include, OnePath, Asteron Life, TAL to name a few). Within these zero-balance funds, individuals will hold a life insurance policy. Each year this premium is paid via an external rollover from an accumulation fund into the insurers superannuation fund. This rollover will only occur once every 12 months. For the rest of the year though the fund will remain inactive! After 9 months of inactivity in this zero-balance fund, the fund will write to you threatening that your insurance will cancel if this ‘inactive behaviour’ continues for 16 months. Obviously though, when the next rollover is received in time for the annual insurance premiums to be paid (ie after 12 months), the clock resets and the next warning letter will be received after a further nine months of ‘inactivity’.
At this stage, there appears to be no way of automatically preventing these alarming warning letters being sent for superannuation accounts with an intentional zero-balance, as superannuation funds are legally required to send out notifications at nine, 12 and 15 months of inactivity. However, we are hoping that many institutions will supply letters that you can sign to prevent these warning letters coming in the future. It is an unintended consequence of the ‘Protecting Your Superannuation’ legislation which was intended to cease premiums that clients were paying inside superannuation funds which they had lost track of many years ago.