Recently you may have heard newspapers, radio, t.v and youtube ads mentioning the significant changes to Superannuation from 1 July 2019. The main purpose of the changes is so your Super is monitored more precisely, and your Superannuation provider does not eat away the money in your Super with unnecessary fees and charges over the years. That’s a great win for the small guy however some changes aren’t as clear as they seem.
One significant change to your Super is that from 1 July 2019, any inactive account will no longer have any default life insurance cover. Inactive means a Super account which has not made any contributions for the last 16 months or more. So if you have any inactive accounts, they will automatically lose life insurance cover.
Still confused? Let us simplify this for you.
During someone’s work life, they change many jobs. Every time they move on to a new job, their employer will ask them to provide Superannuation details to nominate their Superannuation provider. If the employee does not nominate a superannuation provider of their own choosing, then the employer will choose one for them. Quite often many Australian employees will have multiple Superannuation account with different superannuation providers without realising. Therefore, due to having multiple superannuation accounts, they may further have multiple life insurance policies available to them.
If in case they become Totally and Permanently Disabled (TPD) or need to claim Income Protection (IP) or worst-case scenario, if they pass away (Death insurance), then that person (or next of kin if passed away) can make insurance claims from all of those life insurance policies. However, as noted above, the changes from 1 July 2019 will not allow this to happen in that person had an inactive account(s).
Here are two examples:
Example 1: Before the 1 July 2019 Changes:
John is a 58 years old plumber. He has been working as a plumber for the last 38 years and has changed his job four times. Every time he changed his job, his employer will nominate him to a new superannuation provider. John did not have a great understanding of how superannuation works except he only cared about getting his super money once he retired. Fortunately, every time John changed his job, the Superannuation provider he was signed up to had all three life insurance policies in place (TPD, Income Protection and Death) with his Super. Since 2010, John was NOT making any Super contribution to his previous three Superannuation providers however his life insurance cover was still active with his Super.
One day in 2016, John had a really bad injury to his hand. Due to the injury, John had to stop working. His doctor advised that he cannot return to his job again due to the injury. John’s friend told him to make a TPD claim as he may have a life insurance cover. After some phone calls and investigation, John realized he had insurance cover in four different Super accounts and therefore made TPD claim with all four insurances.
John received a Lump Sum payment from all four insurances as they all accepted his claim.
Example 2: After the 1 July 2019 Changes:
Now consider the exact same scenario. The 1 July 2019 changes will mean that since 2010, John was not making contributions to his previous three Super accounts, his accounts will be considered inactive account and he will lose his default life insurance cover with those Super accounts.
Therefore, for John’s injury in 2019, he will only be eligible for ONE life insurance cover. Therefore, if he makes a successful TPD claim then he will only be paid ONE Lump Sum payment instead of four lump-sum payments as per Example 1.
Want to know more?
In our next blog post, we will be covering what you can do to protect yourself and to avoid having an inactive account in the future.
If you need expert advice on injury compensation, talk to the experts at Shaheen Legal, call us on 02 9854 5552