The COVID-19 pandemic has had a profound effect on economic activity, and many Australians were left with little choice but to take up the Federal Government’s early access to super scheme.
While the scheme is now closed to new applications, one unfortunate consequence for those who decided to access their super early is that it may have put their insurance cover at risk. Read on to find out if your insurance could be affected.
What is insurance inside super?
Insurance inside super typically includes life insurance, total and permanent disablement (TPD) and temporary salary continuance insurance. It may be offered through your employer’s super plan as cover they’ve negotiated for you and their other employees.
Why could the insurance inside my super be at risk?
Under the early access to super scheme, eligible people who’ve been financially affected by COVID-19 could withdraw up to $10,000 from their super during the 2019-20 financial year (by 30 June 2020), and up to a further $10,000 during the 2020-21 financial year (before 31 December 2020).
During this time, your insurance terms and conditions may have changed. While we continue to work with insurers to support our customers, it’s important to understand some of the potential impacts to the insurance inside your super:
Making a withdrawal means your total super balance is reduced. If that results in a super balance of less than $6000, there are a couple of different ways your insurance may be affected.
- Zero account balance: If you withdraw a lump sum from your super and it leads to a zero-account balance, your super account will be closed, which means the insurance inside your super will be cancelled from the closure date. If this is the case, your super fund will contact you through an exit statement informing you about impacts to your insurance and any reinstatement options. See “Can I still make a claim?” below for more information.
- Not enough super left to cover your insurance premiums: An early access to super withdrawal could mean your super balance falls to a point where you may not have enough money left in your account to pay your insurance premiums. If this is the case, you’d likely be contacted by your super fund with more information about your options. Some options you can consider to retain your insurance cover include consolidating your super accounts or making a super contribution that is sufficient to cover the ongoing insurance charges that apply to your account.
Should I keep the insurance inside my super?
When compared to insurance outside of super, having insurance inside your super offers some important benefits, such as:
- Insurance premiums are deducted from your super meaning they don’t eat into your take-home pay and are automatically deducted, making them easier to manage.
- If you’re over 25 with a super balance of at least $6,000 and an active account, insurance may be provided automatically within super without the need for underwriting or health checks.
- You may be able to apply for a higher level of insurance, without needing to answer health and lifestyle questions for a limited period of time after joining a new employer.
- Insurance in employer super plans is generally more competitively priced than insurance outside super, and in some cases may be funded by the employer.
But if you’ve accessed some super early and you’re concerned about your super balance, you should be aware that retaining your cover comes at a cost, as paying the ongoing premiums will reduce your balance further. It’s important to work out whether your insurance payments are reducing your balance. As a general rule of thumb, your annual insurance premiums should not exceed 1% of your annual salary (unless you require a higher amount of insurance cover to meet your needs).
You should also be aware that cancelling your insurance may mean you’re unable to get the same amount of cover at the same price in the future. Learn more about the pros and cons of insurance inside super.
How much insurance do I need?
When working out how much insurance you need, there are a few things to consider. Ask yourself how much money your family would have if you were to pass away or become disabled and compare that with how much money your family might need, including how they’d manage paying for day-to-day costs like child care and mortgages.
The difference between the two can give you some guidance on how much insurance you may need, or our insurance needs calculator can also help. If you’re still not sure whether you need insurance – or how much insurance you might need – a financial adviser can assist based on your personal circumstances.
Can I still make a claim?
Insurance claims are being processed during COVID-19 as they were before, and if your insurance has been cancelled, you’re still eligible to lodge a claim for any event that happened before the cancellation.
However, if COVID-19 has resulted in a change to your working arrangements or working hours, there’s a possibility that your ability to claim on your TPD or Income Protection insurance could be affected as work test requirements apply to some types of insurance. See our FAQs for more information about COVID-19 and insurance claims.
If you’ve accessed your super early, make sure you’re clear about how much insurance you currently have through your super, and whether you want to keep it.
To find out what the balance of your AMP super account is, whether you have insurance inside your super, and if you do, whether you could be at risk of having it cancelled or not being able to pay your premiums, check the most recent member statement you’ve received from us, log into My AMP or call us on 131 267.
You might also like to speak to a financial adviser. If you don’t have an adviser, you can contact us on 131 267 or find an adviser online.
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Any advice and information is provided by AWM Services Pty Ltd ABN 15 139 353 496, AFSL No. 366121 (AWM Services) and is general in nature. It hasn’t taken your financial or personal circumstances into account.
It’s important to consider your particular circumstances and read the relevant product disclosure statement or terms and conditions available from AMP at amp.com.au or by calling 131 267, before deciding what’s right for you.
You can read our Financial Services Guide online for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relation to products and services provided to you. You can also ask us for a hardcopy. All information on this website is subject to change without notice. AWM Services is part of the AMP group.