A Statement of Advice is a document that sets out your situation and goals and then gives personal advice that specifically takes these considerations into account.
Fagan says he has clients where he recommends they retain an insurance policy in an industry or a retail employer fund after moving the bulk of their super to a self-managed fund because the large fund offers them automatic cover insurance with benefits they couldn’t obtain outside this form of super because of health issues.
That said, such arrangements are very topical given some important recent changes to the rules on insurance provided by large funds to members with small account balances.
From mid-2019 the government introduced “protecting your super” rules aimed at anyone with less than $6000 in super. If they haven’t received contributions for 16 months or declared they were not low-balance, inactive members, their insurance could be cancelled and their super transferred to the Australian Taxation Office.
From April 1 this year, “putting members’ interest first” legislation changed how big funds can provide basic life and disability insurance to anyone with a low balance, stipulating the balance must be at least $6000 for insurance to be provided.
Responding to the question, Adelaide financial adviser Peter Crump of AMP Advice says there are two issues that relate to the strategy of leaving money in an industry fund to pay for insurance and the ongoing need for insurance cover. The strategy the reader’s adviser arranged to be implemented, he says, remains appropriate in the right circumstances and is one that he uses in situations where there is an SMSF alongside a public offer superannuation arrangement that offers a cost-effective insurance cover that cannot be transferred to the SMSF.
By keeping the old superannuation account open, the insurance cover which has previously been approved is able to be retained. What is important, however, is that sufficient balance is maintained in the super account to ensure that premiums can be paid at all times. As far as the recently-legislated “protecting your super” requirement is concerned, you need to be aware these laws are designed to protect low-balance super accounts from erosion by fees.
What is very important, says Crump, is that members with superannuation accounts being maintained for the continuation of insurance cover (after the transfer of the bulk of the super to another account) need to read carefully any correspondence from their superannuation provider, especially in relation to the “protecting your super” issues.
The second consideration being raised, says Crump, relates to the appropriateness and ongoing need for existing insurance cover. Where insurance is in place through a super fund, contacting the fund should provide assistance in relation to understanding what is being offered. Most large superannuation funds have an internal advice network which can provide this assistance.
Where insurance is arranged outside a large superannuation fund, any policy is likely to have an adviser associated with it and they should be the reference point for any review of the appropriateness of the cover. One issue that should be checked is any commissions earned by advisers on policy renewals.
The hot-button issue when it comes to insurance is whether it can fill a void if something were to go wrong in your life.
To determine whether any form of insurance is relevant, you need to understand exactly what you have in place, says Fagan. You need to know what the sums insured are and what you are paying in premiums. Each policy must be individually examined and assessed to determine whether you have the right amount of cover.
The hot-button issue when it comes to insurance is whether it can fill a void if something were to go wrong in your life. This can only be determined if you have a handle on where things might go wrong – if you were to die, for instance, leaving behind debts or dependants who relied on you.
What insurance broadly does is provide financial protection against unexpected losses.
When it comes to insurance provided through super, it is necessary to be aware that it will represent a cost to your savings goals. Insurance can be expensive, especially policies like income protection and trauma cover.
As recently as last week, says Fagan, his firm was advised by one insurer that its income protection policy premiums would increase by 25 per cent.
Potential policy increases make it essential that policies are reassessed each year when premiums are reviewed.
