When it comes to superannuation, consolidating your super funds by rolling them over from one fund to another can seem like a smart move to save on fees and paperwork. But there's a hidden trap that many people fall into, and it can have serious consequences, especially if you're living with a chronic illness or injury and looking to claim on any disability insurance benefits like TPD or income protection.
In Australia, many people have default insurance cover like income protection (IP) and total and permanent disability (TPD) insurance, automatically through their super. Consolidating your super accounts without the right advice can mean losing this cover forever, and in some cases, it might not be possible to get it back.
How consolidation of your super can cancel your life and disability insurance cover
Most super funds provide default insurance cover when you join. This can include income protection, TPD, and life insurance, often without any health questions being asked. It’s one of the few ways that people with pre-existing medical conditions can access insurance at all.
Importantly, when you roll over or consolidate your super from one fund to another, your disability insurance cover in the fund you're rolling out of will usually be cancelled automatically. Unless you’ve already been accepted for cover in the new fund and that cover has started, you could be left with no insurance cover.
Even worse, if you’re rolling over into a new fund (as opposed to consolidating two funds you already have), that new fund may not offer income protection at all, or may require you to go through underwriting, including medical questionnaires, doctor’s reports, etc.
If you’ve had health issues in the past, you might be refused cover altogether or only offered it with exclusions. This issue may also arise if you are rolling super from an existing super fund that has insurance cover, into an existing fund that doesn’t (and closing the old account). In this case, it’s not usually the case that insurance cover will move with the super monies.
Risks of consolidating or rolling over your super if you’re already unwell
For people living with a chronic illness, a previous injury, or a complex health history, default super insurance can be a lifeline. It’s often the only way to hold meaningful cover without being knocked back or heavily restricted.
We see many people who’ve rolled over their super while managing a health condition, sometimes because a financial adviser or fund told them it was a good idea. Then, when they try to make a claim on their income protection or TPD insurance or try to get new insurance, they find their cover was cancelled or that they’re uninsurable in their new fund.
At that point, it’s often too late. If the rollover has already happened and the old fund has closed your account, the insurance cover will have ended and you usually can’t get it reinstated.
You may still be able to claim IP or TPD if your insurance cover has ended
It’s important to know that eligibility for disability insurance cover, like income protection and TPD benefits, is reliant on the insurance you had in place at the time you stopped work due to injury or illness, not at the time you lodged a claim.
Consider this scenario
- In March 2023, you had two super funds, Fund1 and Fund2, and both funds had TPD cover;
- You were injured in July 2023, and as a result of that injury, you had to stop work;
- Due to financial strains as a result of not working, you consolidate your two super funds into one in December 2023 (six months after you stopped working due to your injury), to save money on the admin fees;
- You now only have one super fund, Fund2, and you only have TPD cover in that single fund.
In this scenario, you can lodge a TPD claim with Fund2, and you may also be eligible to lodge a second claim with Fund1. This is because you held insurance cover in Fund1 at the time you had to stop work due to injury or illness.
Notably, however, if you did not stop work due to your injury until January 2024, you will only have TPD insurance with one fund, and you will only be eligible to apply for a TPD benefit with Fund2.
You can read more about multiple claims in our earlier blogs, “Can I make a claim for a TPD benefit on more than one policy or superannuation account?”
Get advice before you touch your super
If you're thinking about consolidating super accounts, or if someone recommends it, it’s essential to check the disability insurance positions, like income protection and TPD, in each fund before making any changes. That includes:
- What cover do you currently have in each fund?
- Will that cover be cancelled if you roll out?
- Can you get the same or any cover in a new fund (if you’re setting up a new fund account rather than rolling over into a second fund you already have)?
- Are there waiting periods or pre-existing condition exclusions?
Good legal and financial advice can help you avoid losing valuable insurance you may never be able to replace.
Get help from a disability insurance lawyer
At Berrill & Watson, we’ve helped many clients who were caught out by these kinds of insurance traps. Sometimes it’s possible to get cover reinstated, but often it’s not.
So, if you’re thinking about consolidating your super, especially if you’ve had a chronic illness, injury, or mental health condition, speak to one of our team first. We offer free initial advice and run cases on a “no win no fee” basis. So, it costs you nothing to find out where you stand.
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