Some self-managed super funds (SMSFs) are at risk of losing their life insurance cover under new legislation that takes effect on 1 July 2019, warns the SMSF Association.
The legislation, enacted in February this year, states that members of APRA-regulated funds with “inactive” superannuation accounts for 16 consecutive months will lose their life insurance cover unless the member specifically directs otherwise. An “inactive” fund is one that has not received a contribution or rollover in that period.
The Association is concerned for SMSF members as it is aware some of them deliberately have an APRA-regulated fund to get life insurance.
Association CEO John Maroney says: “We are worried that some SMSF members will lose their life insurance cover because they have not checked correspondence from their APRA fund or contributed to it.
“This could have a devastating impact on policy holders or their beneficiaries if their insurance cover is unknowingly terminated. Furthermore, it may be extremely difficult and costly to try and access insurance at a later stage.
“It is therefore imperative that SMSF members wishing to maintain their life insurance cover do so now by giving direction to their APRA-regulated fund that they wish to opt in.
“The other option is to make a contribution or a rollover into the ‘inactive’ APRA-regulated fund so that the period when a fund starts to be inactive is reset. But even if this approach is adopted, we recommend that SMSF members opt in.”
APRA-regulated funds had until 1 April to identify members who have been continuously inactive for six months or more and by 1 May had to inform them that they will lose their life insurance cover unless they choose to opt in.