Imagine the following. You know a young couple with a family, a mortgage, and all the other commitments that go with modern family life.
Then, tragically, one day one of the parents is killed.
When the survivor gets him or herself back together after a few days, the survivor contacts their insurance company, to lodge a claim, only to be told that their insurance has been cancelled because of changed government laws.
Just imagine the sense of devastation and anger. That family’s life as they knew it has gone. They will have to sell the house to repay the mortgage, find somewhere else to live, and probably rely on welfare to meet day to day living. A busy, comfortable life has all of a sudden become a case of scraping by and struggling.
The first thing the survivor will ask is, “How is this possible? We took great care to arrange the right insurance for us, at rates we could afford and put it in a stand-alone superannuation fund, with enough cash to pay several years of premiums. We did it this way because our normal super fund could not provide a comparable insurance package. We had busy lives so set it up to look after itself, just to be sure it wasn’t cancelled because we missed a premium.”
Well, it is not only possible, but is bound to happen. It is not a case of “if”, but “when”.
You see, the Parliament passed laws to compel insurers to cancel insurance held in superannuation funds that are “inactive”, in terms of money coming into them.
Sure, the insured person can contact the insurer, and “elect” to have the cover continue, and all insurance companies have been frantically contacting members to see they know their position.
What could possibly go wrong?
Well, lots actually.
Superannuation funds complain loudly about the fact that members often take little or no notice of their superannuation reports – and it is naïve to think that this will be any different. Those of us living in the real world know Imagine the following. You know a young couple with a family, a mortgage, and all the other commitments that go with modern family life.
Then, tragically, one day one of the parents is killed.
When the survivor gets him or herself back together after a few days, the survivor contacts their insurance company, to lodge a claim, only to be told that their insurance has been cancelled because of changed government laws.
Just imagine the sense of devastation and anger. That family’s life as they knew it has gone. They will have to sell the house to repay the mortgage, find somewhere else to live, and probably rely on welfare to meet day to day living. A busy, comfortable life has all of a sudden become a case of scraping by and struggling.
The first thing the survivor will ask is, “How is this possible? We took great care to arrange the right insurance for us, at rates we could afford and put it in a stand-alone superannuation fund, with enough cash to pay several years of premiums. We did it this way because our normal super fund could not provide a comparable insurance package. We had busy lives so set it up to look after itself, just to be sure it wasn’t cancelled because we missed a premium.”
Well, it is not only possible, but is bound to happen. It is not a case of “if”, but “when”.
You see, the Parliament passed laws to compel insurers to cancel insurance held in superannuation funds that are “inactive”, in terms of money coming into them.
Sure, the insured person can contact the insurer, and “elect” to have the cover continue, and all insurance companies have been frantically contacting members to see they know their position.
What could possibly go wrong?
Well, lots actually.
Superannuation funds complain loudly about the fact that members often take little or no notice of their superannuation reports – and it is naïve to think that this will be any different. Those of us living in the real world know this all to well. Many people will end up with no insurance when it counts, yet they thought they had plenty.
The result will be a further blow to the public’s trust in the financial system, but with the distinction that this one was caused by the parliament.
Why did the Parliament do this? It is a case of good intentions not being thought through. You see, there are a lot of people (particularly younger people) who have “automatically” got insurance cover when they joined their super fund. In some cases they had no need for it, as they lacked dependants and financial commitments. Hence, the insurance premiums came from their super balances, and this would reduce their eventual retirement balances (even though that was decades away, and who knows what might happen in the meantime).
In other words, the possible long term retirement balances of people with no commitments were to be protected at the expense of families with present day, real needs.
Yet another example of people who thought they were doing the right thing being screwed by the system.
John Cameron
B.Econ; B.Com; Grad Dip Bus; MBA, Post Grad Dip Economics
