People planning to apply for early access to their superannuation to deal with severe financial hardship or serious medical problems need to consider the impact early release might have on their insurance cover.
Early release may mean losing the right to claim benefits for income protection, total and permanent disablement and life cover, says Slater and Gordon principal lawyer superannuation Annemaria Gambera.
“With so many people doing it tough following the bushfires, there has been some debate around whether people who have lost their homes should be able to access their superannuation early,” Gambera says.
“It’s hard to see the point of holding onto thousands in savings in your superannuation fund if you can’t feed your children, provide accommodation or send them back to school with books, stationery, uniforms and other resources they will need.
“But doing this could cause you to lose all insurance benefits available to you via your super fund. If there is no money in the superannuation account balance to pay the insurance premiums, the cover will lapse.”
There are several circumstances that allow for early release of superannuation benefits.
Compassionate grounds. Special circumstances for early release include paying for medical treatment for the member or their dependent, making a payment on a loan to prevent them from losing their home, and modifying their home or vehicle for the special needs of their member or a dependent because of severe disability.
Early release is also allowed to pay for costs associated with the death, funeral or burial of a dependent.
Severe financial hardship. A fund member may be able to access their super if they are under severe financial hardship. Trustees need to be satisfied that the member cannot meet reasonable and immediate family living expenses, and they have received government income support payments continuously for 28 weeks and were receiving this support at the time of application.
Financial hardship payments are capped at $10,000 in any 12-month period.
First home super saver scheme. The FHSS allows fund members to save for their first home inside their super account. They do this by making voluntary contributions.
When they are ready to use the savings to buy a home, they can request a release.
Gambera says it is important for people to check with their super fund and read their insurance policy document before applying for early release.
“Deciding to drain your super fund and build it up again later will not necessarily mean that if you are older and fall ill, that you will have less TPD or income protection of life insurance available to you. It depends on the insurance arrangements the super fund has in place.
“An insurer may be unwilling to offer the same amount of cover to an older person, as it may consider them to be at greater risk of making a claim.
“There may also be issues of pre-existing medical conditions.”
People should also consider the alternatives for emergency relief funding, such as the Federal Government’s disaster relief payments.
Tags: superannuation, life insurance, Slater and Gordon, early release of superannuation benefits