NICK BRUINING: Certified Independent Financial Advisers Association wants opt-out life insurance reinstated

The Certified Independent Financial Advisers Association has called for the reinstatement of opt-out life insurance cover for young members joining an employer superannuation fund for the first time.

The call comes on the back of a Council of Australian Life Insurers report showing a significant drop-off in the level of life insurance cover.

Changes to superannuation fund rules six years ago all but wiped out automatic life insurance cover for young people joining superannuation funds. The changes applied to all funds with a balance less than $6000 and for members under 25 years old. In most cases, members of compulsory employer schemes were the most affected.

CALI chief executive Christine Cupitt said life insurance was an important component for young Australian workers.

“Australia’s safety net has supported generations through tough times, but right now younger workers are missing out,” she said.

Chris Young, president of the Certified Independent Financial Advisers Association, said the CALI report showed about half of people under 34 years old had life insurance.

“This a terrible statistic that leaves those with the greatest need for life insurance very exposed if there’s a tragedy that affects a family member,” Mr Young said.

Most superannuation-based life insurance policies pay out on the death or total and permanent disability of a fund member.

“In many cases, the only substantial liquid asset a deceased or permanently disabled young member has is their superannuation. Before the change, that amount was usually boosted by tens of thousands of dollars,” Mr Young said.

Under the current rules, a person must opt in to take out life insurance cover within a superannuation fund. A return to the rules which applied six years ago would see all new members automatically insured for a pre-defined amount, with the premiums deducted from the super fund balance.

“On many occasions where our members have been asked to assist with the death of a young person, superannuation life insurance made a big difference,” Mr Young said.

For a 25-year-old white-collar worker, death and total disability cover of $100,000 would cost less than $1 per week.

“Leaving behind a partner, or worse still, a young child with very little in the way of assets, is financially devastating. That only adds to the grief,” Mr Young said.

Ms Cupitt said younger people who were more likely to need life insurance were missing out.

“Superannuation reforms, affordability pressures, and limited advice options are locking them out right when they should be building confidence in long-term security,” she said.

The changes have also added to the cost of life insurance cover for everyone.

While the nature of superannuation life insurance means most applicants will be accepted up to pre-set maximum limits, the significant drop-off in young members has also meant the changes have contributed to premium increases.

“Life insurance is all about risk. As you get older, the risk of the insurers having to pay out increases. If most of the remaining members with life insurance are older, that necessarily means the premium pool needs to reflect that higher risk and premiums go up,” Mr Young said.