Changing or consolidating super funds can simplify your retirement savings, but it can also affect insurance attached to the fund you are leaving. Life, TPD, or income protection cover can end when an account is closed, so insurance should be checked before transferring the balance. Prior to making a change, you should seek financial advice.
While some insurance arrangements can be transferred, this depends on the type of cover, policy terms and ownership arrangements. Replacing or moving cover without proper consideration could result in the loss of valuable benefits or require new underwriting. Financial advice should be sought before making any changes.
Why Can Insurance End When You Change Funds?
Insurance through super can be linked to membership of that fund and the policy arrangements the fund has in place, particularly for group insurance. If the account is closed, the associated cover may also cease.
Moneysmart warns that changing super funds can affect insurance and recommends checking cover first.
What Insurance Might You Have Through Super?
Depending on the fund, you may hold life cover, TPD insurance and income protection. Some cover may have been provided automatically when you joined the fund. Trauma insurance must be held out of superannuation.
It is important that you understand the different types of insurance, so you can makean informed decision as to what is the right insurance for you. This may change over time.
Why Can Replacement Cover Be Difficult?
A new fund may provide default cover, but the amount, exclusions and definitions can differ. If your health or occupation has changed, equivalent replacement cover may also require underwriting or may not be available on the same terms.
What Should You Compare Before Transferring?
- Amount of existing cover
- Policy definitions
- Premiums
- Waiting and benefit periods for income protection
- Exclusions
- When old cover ends
- When replacement cover begins
When you need insurance, you really need it. Financial advisers have a saying that insurance can be a small light in a dark room.
Do Not Assume Two Policies Are Equivalent
A similar dollar amount does not necessarily mean the policies provide the same protection. Compare the actual definitions and terms. This is where a financial adviser can assist.
What If You Have Multiple Super Accounts?
Multiple superannuation accounts can result in duplicate fees, and where insurance is attached to those accounts, it may result in duplicate insurance premiums, but that does not mean every extra policy should be cancelled immediately. Review whether the cover is valuable and whether you can replace it before consolidating.
Coordinate Super and Insurance Decisions
At Setch Group, super consolidation is considered alongside insurance so that simplifying the super structure does not unintentionally create a protection gap.
If you are thinking about changing or consolidating super funds, complete the Setch Group Financial Healthcheck.
Frequently Asked Questions
Does insurance automatically transfer to the new super fund?
No. The new fund has its own insurance arrangements and eligibility rules.
Should I close my old fund as soon as I open a new one?
Check insurance and other valuable benefits first so you understand what will be lost.
Can I keep an old super account just for insurance?
It may be possible in some circumstances, but fees, contributions and rules affecting inactive accounts should be considered.
This article contains general information only and is not financial advice
