Australians Urged to Review Superannuation Insurance After Policy Cancellations

Recent legislative changes have resulted in the automatic cancellation of hundreds of thousands of insurance policies held within Australian superannuation funds, prompting experts to urge members to urgently review their coverage. Many Australians may be unaware that their life, total and permanent disability (TPD), or income protection insurance has been lapsed, leaving them and their families financially vulnerable.

Why Superannuation Insurance Policies Are Being Cancelled

Under the Protecting Your Super (PYS) package, which came into full effect on July 1, 2019 and was later reinforced by the Protecting Your Superannuation (PYS) 2020 measures, superannuation funds are required to cancel insurance on accounts that meet certain criteria. Specifically, insurance is automatically terminated if:

• The account has been inactive for 16 consecutive months (no contributions or rollovers), and
• The account balance is below $6,000.

These rules were designed to prevent erosion of retirement savings by unnecessary fees, particularly for low-balance or inactive accounts. However, consumer advocates warn that many members—especially those with multiple casual jobs, career breaks, or multiple super accounts—may not realise their insurance has been cancelled until they need to make a claim.

The Scale of the Issue

According to the Australian Securities and Investments Commission (ASIC), over 2 million insurance policies were cancelled in superannuation funds between July 2019 and June 2021 due to the PYS legislation. ASIC’s 2022 review found that while the measures saved members approximately $1.3 billion in unnecessary premiums, a significant number of affected individuals were unaware their cover had ceased.

Industry Super Australia estimates that up to 40% of members affected by automatic cancellations had not intended to lose their insurance, particularly younger workers and those in insecure employment.

Who Is Most at Risk?

Certain groups are disproportionately impacted by the automatic cancellation rules:

• Young workers: Those early in their careers often have lower balances and may change jobs frequently, leading to inactive accounts.
• Casual and gig economy workers: Irregular income patterns can result in missed contributions, triggering inactivity flags.
• Women: Due to career breaks for caregiving, women are more likely to have periods of low or no super contributions.
• Members with multiple accounts: Having several super funds increases the chance that at least one will be deemed inactive.

Losing TPD or income protection cover can be particularly devastating, as these policies provide financial support if a member becomes unable to work due to illness or injury.

How to Check and Reinstate Your Cover

Experts recommend the following steps to ensure your superannuation insurance remains active:

1. Log in to your super fund’s online portal: Most funds allow members to view insurance details, including type of cover, sum insured, and premiums paid.
2. Check your annual statement: Look for sections labelled “Insurance” or “Death and Disability Cover.”
3. Contact your fund directly: If unsure, call your super fund’s customer service team to confirm your insurance status.
4. Consider making a contribution: Even a little contribution can reset the inactivity timer and prevent cancellation.
5. Consolidate multiple accounts: Reducing the number of super accounts lowers the risk of inadvertent cancellations and may save on fees.

If your insurance has been cancelled, you may be able to reinstate it by applying to your fund. However, reinstatement is not guaranteed and may require underwriting, including health checks, which could result in higher premiums or exclusions.

What the Government and Regulators Say

The Australian Treasury maintains that the PYS measures are working as intended, citing reductions in fees paid on low-balance accounts. In a 2023 statement, the Treasury noted that “the majority of affected members either had no intention to retain insurance or were better off without the associated costs.”

Nevertheless, ASIC continues to monitor the impact of these reforms. In its 2023 report on superannuation trustees, ASIC urged funds to improve communication with members about insurance cancellations and to provide clearer opt-in pathways for those who wish to retain cover.

The Bottom Line

While the automatic cancellation of insurance in inactive super accounts aims to protect members from erosion of savings, it has created unintended gaps in financial protection for many Australians. Given the potential consequences of being uninsured, experts stress that proactive engagement with your superannuation is essential.

Taking a few minutes to review your insurance status could prevent significant financial hardship down the track. As one financial counsellor put it: “Don’t wait until you need to make a claim to find out you’re not covered.”

Key Takeaways

• Over 2 million insurance policies have been cancelled in superannuation funds since 2019 due to inactivity and low balance rules.
• Accounts inactive for 16 months with balances under $6,000 are subject to automatic insurance cancellation.
• Young workers, casual employees, women, and those with multiple super accounts are most at risk.
• Check your super fund’s portal or statement to confirm your insurance status.
• Making a contribution or consolidating accounts can help prevent or reverse cancellations.
• Reinstating cover may require underwriting and is not guaranteed.

Frequently Asked Questions

What types of insurance are typically held inside super?

The most common types are life insurance, total and permanent disability (TPD) cover, and income protection insurance.

Will I be notified if my insurance is cancelled?

Super funds are required to notify members before cancelling insurance, but notices may be overlooked, especially if sent to an outdated email or postal address.

Can I get my insurance back after it’s cancelled?

Yes, you can apply to reinstate cover, but your fund may require medical underwriting, and approval is not guaranteed.

Does cancelling insurance affect my super balance?

Cancelling insurance stops premium deductions, which can help preserve your balance. However, it also removes financial protection in the event of death, disability, or inability to work.

How often should I check my super insurance?

At least once a year, or whenever you change jobs, experience a life event (e.g., marriage, birth of a child), or receive a notification from your fund.