Why Your Super Fund Can Cancel Your Insurance Without Telling You

Most Australians assume that once they have super insurance, they have it until they retire. That assumption is wrong.

Under laws introduced in 2019, your super fund is permitted, and in some cases required, to cancel your death, TPD, and income protection cover if your account has been inactive for 16 months. The account can become inactive by simply not receiving employer contributions.

This catches people out in predictable situations: taking parental leave, changing employers, going on unpaid leave, or working casually. Cover disappears. The member often has no idea until they try to claim.

Why Super Funds Cancel Insurance Cover

The Protecting Your Super (PYS) legislation, which came into effect in July 2019, introduced rules designed to stop insurance premiums eroding low-balance super accounts. The policy intent was sensible: stop young or low-income Australians losing their savings to premiums on insurance they do not need.

But the effect has been broader. The automatic cancellation mechanism now affects a wide range of members who do need their cover, including people going through periods of unemployment, leave, or career transition.

Under PYS, a super fund must cancel insurance on an account that:

• Has not received a contribution for at least 16 consecutive months, and

• The member has not opted in to keep the insurance

Funds were required to notify affected members before cancellation. But the notification requirements were not always adequately enforced either in 2019 or for accounts that became inactive after the reforms.

What "Inactive" Means Under the Rules

An account is generally considered inactive if it has not received a contribution for 16 months. Contributions include:

• Employer super guarantee contributions

• Voluntary member contributions

• Salary sacrifice contributions

• Spouse contributions

What does not count as a contribution for this purpose:

• Rollovers into the account from another fund

• Government co-contributions in some circumstances

• Investment returns credited to the account

So if you change employers and the new employer uses a different fund, your old account stops receiving contributions immediately. If you do not make voluntary contributions within 16 months and do not opt in to keep the insurance, the cover on that old account will be cancelled.

What Your Super Fund Won't Tell You

The notice requirements have been inconsistently met. Funds were required to notify members before cancelling cover. But if your contact details were out of date, if the notice went to an old email address, or if the fund sent a generic letter buried among other correspondence, many members never received effective notice.

Cancellation can happen silently through system processes. Super funds process millions of accounts. Cancellations often happen through automated systems, and the fund may never actively communicate with the specific member.

You may have cover with a fund you forgot about. Ten years of working across multiple employers means multiple super accounts. You may have had cover with funds you are no longer monitoring. Those accounts may have had cover cancelled years ago.

Reinstatement is limited. Once cover is cancelled, reinstatement is not always available, or may be subject to underwriting that was not required when you first joined. The window to act is time-limited.

A cancellation you did not know about can be contested. If the fund failed to meet its notification obligations before cancelling your cover, that may form the basis for challenging a claim denial.

Can You Reinstate Cancelled Cover?

In some circumstances, yes. Most super funds have a process for reinstating cancelled insurance within a limited period after cancellation. The typical window is 14 to 60 days from the cancellation date, though this varies by fund.

Reinstatement within this window is generally available without new underwriting. After the window closes, reinstating cover typically requires a new application and may involve:

• Answering health questions

• A waiting period before claims can be made on the new cover

• Cover being subject to medical exclusions based on your current health

If you discover your cover was cancelled, contact your super fund as soon as possible to understand whether reinstatement is available and on what terms.

If your cover was cancelled and you subsequently became disabled, you cannot reinstate cover retrospectively. But you may be able to challenge the denial on notification grounds.

What to Do If a Claim Was Denied Due to Lapsed Cover

If your claim was denied because the fund says your cover had lapsed when your disability commenced, do not accept this at face value.

Verify the exact dates carefully. The fund needs to demonstrate that your cover had lapsed before your disability commenced. The date your disability began for insurance purposes is not always the date you stopped working. It may be the date of diagnosis, or the date your treating doctor documented that the condition prevented work. These dates can differ by weeks or months.

Review whether the fund met its notification obligations. If the fund did not send adequate notice of cancellation, or the notice was sent to an address you no longer used, this may give grounds for a complaint.

Check whether the fund applied the inactivity rules correctly. Confirm that no contribution, however small, was made to the account during the relevant 16-month period. Voluntary contributions, salary sacrifice amounts, or any other crediting can restart the inactive period clock.

Lodge an internal review. Challenge the denial in writing and request that the fund provide evidence of the cancellation date, the method and date of notification, and the basis for arguing the date of disability falls outside the cover period.

Escalate to AFCA. Notification failures and incorrect application of the inactivity rules are accepted grounds for AFCA complaints. AFCA can reinstate cover and require the fund to assess a claim as if it had been made while cover was active.

How to Protect Your Cover Going Forward

If you want to ensure your super insurance is not at risk of cancellation:

Log in to your fund regularly. Check your insurance status and confirm your cover type and sum insured are as expected. Any unusual changes should prompt a call to the fund.

Make at least one contribution per year to any fund where you want to maintain cover. Even a small personal contribution resets the inactivity period.

Opt in explicitly if you return to cover. If you have had a gap in contributions, contact your fund and confirm your cover status. If it has lapsed, ask about reinstatement options immediately.

Consolidate old super accounts if you no longer need cover through them. Before consolidating, check whether those accounts hold insurance that would be lost on consolidation, particularly if you have a health history that would make new cover more difficult to obtain.

Keep your contact details up to date with every fund. Funds are required to notify you before cancelling insurance. If they cannot reach you, you lose the benefit of that notification.

How Better Claim Can Help

Better Claim traces super accounts across all funds, confirms what cover was in force when a disability commenced, and identifies whether cancellations were properly notified and legitimately applied.

We have seen numerous cases where a denial based on "lapsed cover" turns out to be based on either an incorrect claim about the cancellation date or a failure to follow proper notification processes. These denials can be challenged.

If you are not sure whether your current cover is intact, or if you have received a denial related to lapsed coverage, the free eligibility check is the right starting point.

Frequently Asked Questions

My cover was cancelled while I was on parental leave. Do I have any recourse?

Possibly. Parental leave is a common reason contributions pause. If the fund failed to adequately notify you before cancelling, you may be able to challenge the cancellation. Contact the fund and ask for evidence that it met its notification obligations. If it cannot demonstrate that, escalate to AFCA.

I never received any notice of cancellation. What should I do?

Request from the fund the evidence that notice was sent: the date, the method (email or post), and the address it was sent to. If the address was incorrect or outdated, and the fund had other contact details on file, this may support a notification failure argument.

Can I claim on cover that was cancelled before I became disabled?

Generally no, cover only applies during the period it is in force. However, if your disability commenced close to the cancellation date, the exact timing matters and there may be a genuine question about which came first. This is worth reviewing carefully.

My super balance was low. Does that mean I never had insurance?

Not necessarily. Most super funds provide automatic default insurance regardless of account balance when you first join as a working member. The low balance is more relevant to whether premiums caused the account to erode to zero (which has separate rules), not to whether cover existed initially.

What happens if I consolidate all my super into one fund?

Your insurance in the funds you are rolling out of will generally be cancelled as part of the consolidation. Before consolidating, always check the insurance terms in each fund. If one fund's cover is more valuable (for example, lower premiums, better definition, or higher sum insured), it may be worth maintaining that account separately.

I found an old super account. Could there still be insurance on it?

Yes, there could be, but only if the account never became inactive long enough to trigger automatic cancellation. Check the account's insurance status through the fund directly. If cover has lapsed, ask about reinstatement.

Resources

1. AFCA (Australian Financial Complaints Authority): Free dispute resolution for challenging super fund decisions to cancel insurance without adequate notice

2. ASIC MoneySmart: Super and Insurance: Overview of how super insurance can be cancelled and what protections apply

3. ATO: Find Your Super: Tool for locating inactive super accounts that may have had insurance cancelled

4. SuperConsumers Australia: Independent research on insurance cancellation practices and member rights in superannuation

Disclaimer: The information in this article is general in nature and does not constitute legal or financial advice. Super fund insurance rules and notification requirements vary between funds and the legislation has been subject to amendments. Better Claim recommends seeking professional advice specific to your circumstances.