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Bruce Brammall, The West Australian, 13 May, 2019
There’s a predictable front page splash happening very soon. Not if. Definitely when.
Here’s the yarn: “Dad and two kids lose home, now destitute, because Mum’s insurance cancelled by government decree.” (Or, you know, some variation on mums and dads and kids.)
Why? Because a process of automatically cancelling the insurance coverage on literally tens of thousands, possibly millions, of super fund accounts, has begun.
There’s a reasonable chance it is going to happen to you, or someone you know.
In April and May, millions of Australians received snail- or e-mail warning that insurance attached to some super accounts would be cancelled shortly.
The stated reason will be that the fund hadn’t received a rollover or contribution on their behalf in the last 16 months.
Most warnings were generic. Some specific: “You have $1 million of life insurance. Because there has been no contributions in the last 16 months, the insurance will be cancelled unless you take action immediately.”
Sadly, most people who will ignore the communications.
We’ve heard already from many clients (in super funds with, collectively, millions of members). That’s great. We can investigate and give them advice.
It’s the people who receive the email and don’t act that frighten me.
Why is this happening? And what can you do about it?
The “why” is a bit complicated. The government decided that too many people were paying for insurance they hadn’t asked for and possibly didn’t want. So, let’s cancel those insurances by government decree.
The way they decided to interpret “people not wanting or needing insurance” is blunt. If you haven’t directed contributions or rollovers over the previous 16 months, it’s a “lost” or “unloved” super fund. Under these circumstances, funds must cancel associated insurance coverage.
However, many people do, very deliberately, hold on to insurance in super funds that they might not contribute to anymore.
Why? Because they got good/cheap/exclusion-free, cover, when they were younger and now they have health issues (even, seriously, as minor as back pain) which would mean they can’t get insurance, or will get cover with exclusions or loadings.
For example (and this is common), a 40-year-old dad, with two kids, who has three super funds after nearly 20 years in the workforce. He only has $100,000 in super, but there is $1 million-ish, across the three super funds in life and disability insurance.
Married life didn’t work out. He divorced. Sensibly, he sought help for anxiety and depression.
(To cut out some legal jargon, just believe me … if he applies for new insurance, he will get an exclusion, at best, for mental health conditions.)
Only one of those super funds is receiving contributions from his employer. So, under the new proclamations, two of his funds will cancel his insurance coverage with them … unless he acts immediately.
He’s remarried. And needs the insurance.
What happens if he isn’t “well” when the letters arrive? Or he’s moved house and hasn’t updated his contact details? Or he is well, but is overseas on an extended break to recover? Or Australia Post, as seems to be increasingly the case, simply doesn’t deliver the mail?
The insurance from the other two funds, that aren’t receiving contributions, will be cancelled. Insurance companies don’t accept a “late pass” to reinstate a policy, outside of pre-set time periods.
Once cancelled, it’s done.
He dies.
His new wife and kids will get next to nothing. They can’t afford the mortgage. The home must be sold. The wife has to pull the kids out of school.
If they had have got the full $1 million, she’d have been okay.
But the government decreed the insurances be cancelled.
There’s your front page. It’s will happen by year’s end, somewhere in Australia.
So, what can you do about it?
If you get one of these letters, contact your financial adviser and get them to assist.
Or, send a contribution to the fund. It doesn’t need to be much. Arguably, as little as a dollar ought to do it, but it will depend on the fund’s rules. And you’ll probably get a tax deduction for it. It will cover you for another 16 months.
Or set up a monthly contribution to each fund of $5, which will arguably keep the insurances going forever.
But, for god’s sake, don’t ignore the letters. Death can strike at unfortunate times.
Bruce Brammall is the author of Mortgages Made Easy and is both a financial advisor and mortgage broker. E: bruce@brucebrammallfinancial.com.au.