The proposal would prohibit default superannuation funds from providing insurance products, either by default or on an opt-in basis, through active accounts with a balance below $6,000, and through new accounts belonging to members aged under 25 years. Instead, the government would pay out claims for life insurance, total and permanent disability insurance and income protection insurance for these members under the same terms and conditions that would have applied if the fund was not prohibited from providing these insurance products, and the members had been defaulted into insurance products by their fund.

Claims would be assessed in line with the terms and conditions of the default insurance, with the assessment contracted either to the fund’s default insurance provider or to another contracted provider. All approved claims would be paid out in full by the government.

For eligible individuals with default accounts in multiple funds, the level of cover would be based on the highest level of default cover between those accounts. Cover would not be available to individuals with default accounts in multiple funds if at least one of those accounts has a balance of $6,000 or above.

Where a member has exercised choice to join a fund (as opposed to being defaulted into a fund by their employer), the fund would not be prohibited from providing insurance products to this member. However, the member would not be eligible to make a claim to the government in relation to this fund.

The proposal would have effect from 1 October 2019.