Thousands of young Australians are discovering they've lost crucial life insurance coverage without their knowledge due to recent superannuation reforms targeting inactive accounts.
The Unseen Insurance Crisis
Major changes to superannuation regulations are having unintended consequences for younger members across Australia. Under new rules designed to protect retirement savings from being eroded by fees, super funds are now required to transfer inactive low-balance accounts to the Australian Taxation Office.
The critical detail many members are missing is that when accounts are classified as inactive and moved to the ATO, all associated insurance cover is automatically cancelled. This has created a protection gap that could leave families financially vulnerable in the event of tragedy.
How Accounts Become 'Inactive'
An account is now considered inactive if no contributions or rollovers have been received for 16 consecutive months. This definition catches many younger workers who frequently change jobs or have periods of casual employment.
Financial commentator Nick Bruining highlights the particular risk for Australians under 25. "Many younger people have multiple super accounts from various short-term jobs," Bruining explains. "If they're not actively monitoring each account, they could lose insurance coverage without any warning."
The problem extends beyond the very young. Workers taking career breaks, new parents on extended leave, or those experiencing periods of unemployment are equally vulnerable to having their accounts deemed inactive.
The Real Cost of Lost Coverage
For many Australians, especially younger workers, superannuation represents their only form of life insurance. Industry data shows that approximately two-thirds of death and total permanent disability insurance claims are paid to people under 55.
Young families are particularly at risk. A 30-year-old with a mortgage and young children might have $500,000 of life insurance through their super that disappears overnight if their account becomes inactive.
Bruining emphasizes the severity of this situation: "People assume they're covered, but this automatic cancellation creates a dangerous protection gap. If tragedy strikes, families could be left without the financial safety net they believed was in place."
How to Protect Your Insurance
Experts recommend several immediate actions to ensure continuous insurance coverage:
Consolidate your super accounts: Combining multiple super accounts into one main fund prevents smaller accounts from being classified as inactive.
Make small contributions: Even minimal contributions to each super account can maintain their active status and preserve insurance coverage.
Contact your fund directly: Speak with your super provider to confirm your account status and insurance arrangements. Many funds offer options to maintain insurance even if your account becomes inactive.
Check your MyGov account: Regularly monitor your super accounts through the ATO portal to identify any that might be at risk of being transferred.
The superannuation changes, while well-intentioned in protecting retirement savings from fee erosion, have created this significant insurance blind spot. Being proactive about your super arrangements is now more important than ever to ensure you and your family remain protected.
