Opt-in group cover for young people stirs debate

By

10/05/2018

The insurance industry is still working out the probable consequences of the government’s move to make life cover inside superannuation an ‘opt in’ for members under 25 years old starting in July 2019, as announced in the Federal Budget.

The move is designed to avoid having fund members find themselves with group life cover they weren’t necessarily aware they had and paying premiums for it that erode their superannuation balances.

Dr Martin Fahy, chief executive of the Association of Superannuation Funds of Australia, expressed concern over the move, saying on Tuesday, May 8: “Many young people have dependants and financial commitments, so in the instance of a tragic event occurring, particularly disablement early in life, having insurance in place is extremely valuable.

“Moving to an opt-in model puts insurance coverage at risk for this segment.”

The standard cover many group life policies provide, which will now become opt-in for members under 25, combines death and disability insurance. Michael Rice, principal of Rice Warner actuaries, said there might be some logic in splitting out disability insurance from those packages.

“The government’s argument on this is that young people don’t have many dependants nowadays, but disability insurance is a separate issue that could be of critical value,” Rice said.

The budget move follows the lead of Australian Super, the largest super fund in Australia, which recently removed compulsory insurance premiums for members under 25.

Other big super funds are trialling nominating ages such as 19 and 20 on the same basis, giving young members below those ages the option to buy insurance cover only if they want it.

One source in the industry said it was a complex area and it was unclear how three different categories of member would be handled.

“It’s fairly straightforward about members under the age of 25 but there will also be an opt-in model for members with balances of less than $6000 and members who have not made a contribution to their super account in the last 13 months,” the source noted.

Until now, most group insurance has been provided on an ‘opt-out’ basis, which younger fund members have not fully understood.

Group life insurance is generally regarded as a cheap way for workers to cover themselves and their families, to the extent that many fund members maintain contributions to the super fund providing cover long after they have made bigger-scale arrangements, such as starting a self-managed super fund.

Experts have warned that there are a number of circumstances under which a young person could lose the life insurance cover they wanted to maintain, such as when they take parental leave or when they become self-employed and cease contributions for the 13-month period.

ATO and unclaimed super

Treasurer Scott Morrison announced that the Australian Taxation Office would take control of inactive accounts with balances below $6000, on the basis that it has better records with which to trace the accounts’ rightful owners.

There are billions of dollars in unclaimed superannuation assets sitting in the government’s consolidated revenue awaiting collection, mostly accumulated by young workers hopping from job to job and address to address before settling down.

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