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Speakers: Mohamed Said of Avante Financial Services and Chris Kirby, Head of Technical Strategies, AMP
Mohamed: Hello and welcome, Mohamed Said here, and today I’m joined with Chris Kirby, Head of Technical Advice at AMP. Today we’re going to talk about insurance inside super, so that you know what’s coming.
Chris, thank you very much for your time.
Chris: No problem.
Mohamed: Can you tell us what’s happening with insurance inside super?
Chris: The single biggest issue that’s happening with insurance through superannuation is that from the 1st of July 2014, it’s now a mandatory requirement that all insurance held through superannuation becomes consistent with what is termed a SIS condition of release. Currently insurance held through superannuation does not necessarily have to be consistent with a SIS condition of release, which in effect means that insurance can be held and paid into a super fund when it doesn’t necessarily align with the condition of release.
From the 1st of July, the only insurance that will be available to new clients joining a super fund will be death cover, total and permanent incapacity that has what we term an “any occupation” definition, and temporary salary continuance.
Mohamed: Chris, so tell me, how does that affect clients with existing insurance arrangements?
Chris: The legislation specifically allows for all clients who have insurance through superannuation prior to the 1st of July 2014 to not only maintain that existing insurance, but also are provided with the option to increase that insurance in the future.
Mohamed: Okay, so Chris, what I’m understanding is that if a client has an existing insurance cover and they were to move or roll over to another super fund or take up an insurance somewhere else, they would lose the existing insurance arrangements?
Chris: Mo, that is correct. The privilege of being grandfathered exists while they maintain that current arrangement. If they were to move to a new super fund, the terms of the insurance would be under the new legislation that applies from the 1st of July, which means that in some situations, the insurance won’t be as generous as their existing arrangements.
Mohamed: With all of these changes happening to superannuation, is it still a good option to have insurance cover within your super?
Chris: Absolutely. For the majority of all Australians, superannuation still provides a very effective way of purchasing and acquiring insurance. For many of us, it provides highly tax effective premiums, as well as the advantage of using our superannuation cash flow.
However, the new reforms do mean that we need to be more vigilant about our insurance through superannuation and as our lives and our situations change, it might be appropriate to consider insurance solutions outside of superannuation.
Mohamed: Chris, so this highlights the fact that people need to really consider the individual circumstances and needs, whether or not insurance inside super is a benefit over building up their super account balance and hence having a large nest egg for retirement.
Chris: Absolutely.
Mohamed: What should people consider doing before the 1st of July?
Chris: Well, given the time critical nature of these changes that are coming through, it really is important that everyone takes an opportunity prior to the 1st of July to look at their superannuation, what insurance is held through superannuation currently, what insurance can be taken now prior to this change taking place, and more broadly, have a health check on your superannuation—what insurances you do have, what you need, and maybe other insurances that might be available outside superannuation to meet your personal needs.
Mohamed: Well, there you have it, ladies and gentlemen. I think it’s quite important that we all look at our super funds and the insurances inside our super before the 1st of July.
Chris, thank you very much for your time, I know you’re a busy, busy man, we really appreciate it. I’m sure that we got a lot of information and this will help us make better informed decisions and I hope everybody will review their insurances before the 1st of July this year.
If you have any questions or would like to arrange an insurance review, please contact me by clicking the link below. Until next time—to your success.
