Did the Govt fail to understand ‘risk-only’ super fund members?

super-fund-members/super-funds/superannuation-funds/superannuation/government/financial-advice/insurance-inside-superannuation/TAL/life-insurance/life-insurers/AIA/BT/Zurich/superannuation-account/insurance-premiums/

19 July 2019
| By Mike |
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“Risk-only members” - people who take financial advice and join a superannuation fund for the major purpose of obtaining insurance coverage - are at high risk of being seriously disadvantaged by the Government’s latest legislative moves on insurance inside superannuation, according to major insurer, TAL.

Furthermore, the big insurer has pointed out that the numbers of risk-only superannuation fund members runs into the hundreds of thousands.

TAL used a submission to the Senate Economics Legislation Committee review of the Treasury Laws Amendment (Putting Members’ Interests First) Bill 2019 to argue that such “risk-only” members should be excluded from the legislation.

In doing so, TAL pointed to the fact that it had a large book of “risk-only” customers “with approximately 74,000 members holding risk-only cover through superannuation funds”.

“TAL’s numbers do not account for other life insurers in the industry (e.g., AIA, BT, Zurich) that also have significant numbers of risk-only members,” the submission said. “All of these members are at risk of having their insurance policies cancelled because of the low balance account provisions (section 68AAB) in the Bill.”

“Risk-only members have chosen to open superannuation accounts, typically with no accumulation balance, for the purpose of maintaining insurance coverage. These members regularly contribute to their accounts (at least annually, through direct contributions or rollover from their primary superannuation account), and these contributions or rollovers are used to fund insurance premiums,” the TAL submission said.

“Risk-only policies require a member to apply for specific types and levels of insurance of their choosing through superannuation, and the members are subject to underwriting, unlike default group insurance cover.”

“The level or features of the insurance cover held through risk-only accounts may not have been available through the member’s primary superannuation account. Moreover, a significant proportion of these members have received personal financial advice on these arrangements. “

The TAL submission said that as “risk-only” members essentially had nil balance accounts (apart from funding premiums), the low balance provisions in section 68AAB would prohibit future risk-only insurance product offerings, unless trustees received an insurance election opt-in from members.

“It will also mean that existing risk-only members will have their cover cancelled under the Bill, unless they make an election. This is clearly an unintended consequence,” it said.   

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