The COVID-19 pandemic has not only been a global health crisis; it has severely affected the Australian economy due to reduced productivity, loss of life, business closures, trade disruption and the decimation of the tourism industry. The dramatic impacts of COVID-19 on Australian businesses have resulted in a significant reduction in income, a rise in unemployment and ultimately, an overwhelming feeling of uncertainty widespread amongst the community.
As state-wide lockdowns become a recurring theme, many workers have been made redundant from their jobs, whilst others have been stood down from their job indefinitely. With the Australian Bureau of Statistics forecasting that unemployment rates will continue to rise in the coming months, it is critical that Australians protect their super and safeguard their insurance entitlements.
What will happen if I access my super early?
In an attempt to soften the economic blow on Australian households who have been directly affected by COVID-19, the Federal Government has made temporary changes to the early release of superannuation. Under these new laws, workers and sole traders in financial hardship were able to access up to $10,000.00 of their superannuation in financial year 2019-20, and a further $10,000.00 in 2020-2021, tax free.
Whilst early access to your super may provide temporary financial relief, it is important to remember that super is a long-term investment for your retirement. Further, early access of your super may deplete your account balance and put you at a real risk of losing valuable life and disability insurance.
What happens to my insurance if I’m not working?
Often, many individuals have insurance cover through their superannuation account. This may include Death Cover, Total and Permanent Disablement (“TPD”) and Income Protection insurance. The purpose of this insurance is to protect you financially if you are unable to work because of injury or illness.
Insurance through your superannuation account is generally provided automatically, meaning that insurance cover is offered to all superfund members as a “Group Life Policy”. As you have not had to apply for the cover, insurance premiums are usually quite affordable, and may cover you for pre-existing conditions. This can be useful if you have health conditions that can make it difficult to obtain insurance outside of super.
If you withdraw all of your money from your superannuation account, or do not meet the minimum account balance required, this can result in your insurance cover lapsing due to there being insufficient funds to pay premiums.
If you have lost your job or have been stood down, your insurance cover may continue for a specified period of time (for example, 16 months), even if no contributions are being paid into your superannuation account. However, if you are still unable to receive or make a contribution after that specified period, your insurance cover may stop altogether.
If after 16 months you are still unable to make or receive contributions into your superannuation account (excluding investment returns, investment credits and refunds), your insurance cover will be cancelled.
If your insurance cover lapses or is cancelled, there is a real risk that you will not get it back. If you have to re-apply for the insurance cover, the superannuation fund may not offer it to you on the same terms and you may have to pay higher premiums or be subject to health exclusions.
Can I claim income protection if I’ve lost my job?
If the reason you have lost your job is due to injury or illness, you may be able to claim. However, if you have lost your job as a result of the economic downturn due to COVID-19, you are unlikely to satisfy the eligibility criteria for Income Protection.
Income Protection insurance through your super is designed to protect your income if you have suffered an injury or illness and are temporarily unable to work. It does not cover loss of income due to redundancy or being stood down.
What are my options?
Life takes some unexpected turns and losing your job can certainly be one of them.
If you do require early access to your superannuation due to COVID-19, we strongly recommend that you obtain financial advice. Additionally, it is important that you contact your superfund and clarify the minimum account balance required in order to keep your insurance cover active.
If you remain out of a job and are concerned about contributions not being made into your superannuation account, we recommend that you contact your fund and discuss how you can prevent your insurance cover being cancelled by “opting-in”.
Many Australians are not aware that they have insurance cover through their superfund. If you are unable to work due to injury or illness, you may be eligible to claim compensation.
At Zaparas Lawyers, we’re committed to helping you better understand your insurance entitlements. If you are unsure about whether you have a claim, click the following link to complete our FREE CLAIM CHECK.