Trustees of super funds will now have to provide minimum levels of default life and total and permanent disability (TPD) insurance to members.

The requirement is part of a draft bill to be introduced into Parliament covering further reforms to the sector under the MySuper legislation.

“This will provide a safety net to members who are least likely to give consideration to their insurance needs,” the bill’s explanatory memorandum says.

“To meet this requirement, it is not sufficient for trustees to simply release the member’s accrued super balance.

“Rather, the trustee must provide benefits by taking out an insurance policy.”

The bill says a fund failing to provide life insurance will be regarded as having breached the standards required for a fund to be licensed.

Trustees will have to set out conditions for members to qualify for the default insurance. That can be based on the number of hours they work or their account balance.

These conditions and the types of benefits offered through insurance must meet the requirements of the Superannuation Industry Supervision (SIS) Regulations. 

The bill says two new operating standards are expected to be introduced for the types of insurance the funds offer.

The first standard will limit trustees to taking out life insurance to provide members with benefits in the case of “death, terminal medical condition, permanent incapacity and temporary incapacity”.

The second standard will prohibit funds providing benefits for death and incapacity unless they are backed by an insurance policy.

Funds wanting to self-insure will be allowed to do so only if they are a defined benefit fund. Accumulation funds will have to buy insurance from a life company.

Members will be allowed to opt out of either life or TPD cover to protect their super balances, but they must be aware of the risks of not having insurance if death or disability occurs.

But the member will be allowed to obtain insurance cover outside the fund.