Insurance traps in your super

Even though it may seem advantageous to access low cost insurance with a large super fund there are some circumstances that may cease insurance cover including:
 
Minimum balance requirements are not met
 
Most large super funds will require members maintain a minimum balance in their account to retain cover which can range from as low as $1,000 and up to $10,000. Although most funds allow insurance cover to be kept providing premiums can be automatically deducted, some funds may cease cover once the account balance falls below the threshold.
 
No employer contributions
 
Some superannuation funds that offer automatic income protection insurance will terminate a member’s insurance cover if employer contributions cease for six months. Other funds may cease income protection insurance cover after 13 months from the date of the last employer contribution regardless of the account balance.
 
No longer working for a particular employer
 
If you change employers or no longer work in a particular industry you may risk losing your insurance cover. Funds may require that a particular employer makes contributions to the account to retain total and permanent disability (TPD) and income protection cover. Members who no longer work in the public sector may risk losing their cover from the day they officially cease employment with the relevant public sector. These public sector funds generally do not accept further contributions or rollovers if the member is no longer working for the relevant public sector employer. .
 
Terminal illness payouts
 
Some super funds may pay out insurance at the TPD level upon terminal illness, which reduces any remaining life cover paid on death. This may result in a deprivation of funds to account for medical or palliative care before death. This style of cover is in stark contrast to other funds that pay out 100 per cent of life cover upon terminal illness.

For more information, please contact:

Neal Dunne
Director - Wealth Management
+61 3 9608 0170
ndunne@moorestephens.com.au