Insurance in Superannuation provides financial security for Australians. By providing insurance benefits such as Total and Permanent Disability (TPD), Income Protection (IP) and Death Insurance cover, in the event a person stops working due to injury or illness, they can (or should be able to) rely upon this insurance in a time of need.
However, many people are unaware of the potential negative consequences to their insurance simply by changing super funds. Switching super funds is seen by many a lot like switching banks with people focusing on the positive investment returns of their fund rather than the underlying insurance their fund provides.
In this blog, we’ll explore the impacts of switching super funds on your insurance cover, the risks involved, and how to make the right decision.
Understanding Superannuation Insurance
Most superannuation funds include insurance policies designed to provide financial support in the event of illness, injury, or disability. These insurance policies typically include one or more of the following types of insurance:
Total and Permanent Disability (TPD) Insurance
TPD insurance provides a lump sum payment if you are unable to return to work due to illness or injury.
Income Protection Insurance
Income protection provides monthly benefits to replace your wages if you are temporarily unable to work due to illness or injury.
These benefits can be invaluable, especially during times of financial hardship caused by unexpected health issues. However, they are tied to your superannuation fund, and changing funds can have significant implications.
What Happens to Your Insurance When You Change Super Funds?
When you switch super funds, your existing insurance cover does not automatically transfer to the new fund. This means you may lose your TPD and income protection cover unless you take specific steps to keep them in place.
Loss of Existing Cover
If you close your old super account, the insurance policies attached to that account will cease. This can leave you uninsured, particularly if your new super fund does not offer equivalent cover or if you fail to opt-in for insurance with the new fund.
Waiting Periods and Limited Cover
Even if your new super fund offers insurance, there may be waiting periods before the cover becomes fully active.
Additionally, some policies may impose limited cover for a certain period, meaning you may not be fully insured during this time. This is particularly relevant where you may have developed health problems while a member of the other fund, and changing to a new fund could mean you are excluded from claiming by virtue of what would become known as a pre-existing condition.
Changes in Policy Terms
Insurance policies vary significantly between super funds. The definitions of TPD (and Death and terminal illness insurance) and the terms of income protection cover may differ, potentially making it harder to qualify for benefits under the new policy or providing for lesser benefits. You can only ever know this by reading and understanding each policy.
Higher Premiums
Switching to a new super fund may result in higher insurance premiums, particularly if you are older or have pre-existing health conditions. It depends on how much insurance you obtain, and whether it’s default cover or you apply for additional insurance cover.
Risks of Losing Insurance Cover
The consequences of losing your TPD and Death Cover and income protection cover can be severe, especially if you experience illness or injury after switching super funds. Without insurance, you may face:
– Financial Hardship: Loss of income protection benefits can leave you without a safety net during periods of temporary disability.
– Inability to Claim TPD Benefits: If you become permanently disabled, the absence of TPD cover can result in significant financial strain.
– Difficulty Obtaining New Cover: If you have pre-existing conditions, you may struggle to obtain new insurance or face exclusions under the new policy.
How to Protect Your Insurance When Changing Super Funds
If you’re considering switching super funds, it’s essential to take steps to protect your insurance cover:
- Review Your Current Insurance
Before making any changes, review the insurance policies attached to your current super fund. Understand the level of cover, premiums, and terms of the policy.
- Compare Insurance Options
Check whether your new super fund offers equivalent or better insurance cover. Pay attention to policy definitions, waiting periods, and exclusions.
- Maintain Your Old Fund
In some cases, it may be beneficial to keep your old super fund open to retain your existing insurance cover. This is particularly important if your new fund does not offer comparable benefits.
- Opt-In for Insurance
If your new super fund requires you to opt-in for insurance, ensure you do so promptly to avoid gaps in cover.
- Seek Advice
Consult a financial adviser or superannuation insurance lawyer to understand the implications of switching funds and to ensure your insurance needs are met.
Key Takeaways
Changing super funds can have significant consequences for your TPD, income protection and death insurance. To avoid losing valuable cover, it’s essential to:
– Review your current insurance policies
– Compare options with your new fund
– Opt-in for insurance where required
– Seek professional advice
At Leonard & Welch, we specialise in superannuation disability insurance claims and can help you navigate the insurance landscape. If you have questions about your insurance or need assistance with a claim, contact us today.
There is, of course, plenty to know that is not covered here, and as the usual legal disclaimer goes, the information here is of a general nature because legal advice always depends on your circumstances.
Contact
You can call us at (03) 9969 7077 or via email at info@leonardwelch.au.
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