Look out for insurance changes from 1 July 2019

From 1 July 2019, your clients could lose insurance cover if their APRA regulated fund account is considered inactive.

Funds could be considered inactive if there has not been a contribution or a rollover for a continuous period of 16 months.

If you have any clients that hold APRA regulated fund accounts that are considered to be inactive for 16 month period to 1 July 2019, it is likely that their insurance cover will be terminated unless the clients notifies the fund and elects to retain the insurance cover.

These funds had an obligation to inform members by 1 April 2019 that they were likely to be considered to be inactive and that their insurance cover would be canceled from 1 July 2019 unless they opted to retain the cover.

It is a common practice for many clients with SMSFs to also have a secondary APRA regulated fund which provides them with insurance cover.

This may be done for two key reasons:

  • To access insurance policies provided through large superannuation funds for lower premiums
  • To retain insurance cover as the client cannot apply for new policies for medical reasons

It is most likely that any clients holding insurance cover through APRA regulated funds will consider that their SMSF is their primary superannuation account and therefore receives all their contributions and roll-overs.

It is usually the case that clients will leave enough money in their APRA regulated fund account to cover the cost of insurance premiums. Where required they may rollover funds from their SMSF to their APRA-regulated fund or make a contribution to pay for insurance premiums and administration fees to keep their insurance policy.

We are concerned that insurance will be unknowingly closed for these accounts because clients have not checked their correspondence, especially for those who rely on this insurance held separately.

This could have a devastating impact on policyholders or their beneficiaries if their insurance cover was unknowingly terminated. Furthermore, it may be costly or not possible to try and access insurance at a later stage of life.

It is important that any client who wishes to maintain their insurance cover, takes the necessary steps as soon as possible.

This includes either:

  • Providing a direction to their APRA regulated fund opt-in to retain their insurance cover
  • Making a contribution or rollover to their APRA regulated fund so the period resets when assessing the inactive account status.
    However, it stressed that the client also opt-in so they don’t risk losing the insurance cover in another 16 months

How can we help?

If you have any questions, require assistance or would like further clarification on any aspect of your clients’ needs, contact John Lethbridge today on 1800 333 143 to discuss your specific requirements.