Australians taking up an offer to access up to $10,000 of their retirement savings tax-free this year are advised to be careful not to trigger automatic cancellation of their superannuation insurance.

The Federal Government is allowing Australians unemployed as a result of COVID-19 to dip into their retirement savings in order to keep afloat during tough economic times.

Law firm Slater and Gordon warns that some people who take advantage of this option would fall below the $6000 mark in their fund, causing their default insurance to be cancelled automatically.

From Wednesday, default superannuation insurance is to be cancelled automatically for Australians who have failed to “opt in” and are aged under 25 years old, or hold less than $6000 in their fund, or have an inactive account for 16 months or more.

Slater and Gordon senior associate James Hunter says reduced or no contributions entering a fund, ongoing administration fees and insurance premiums together with the $10,000 lump sum withdrawal could reduce an account balance to less than the mandated limit.

“If this occurs, your total and permanent disability cover, life insurance and income protection may be cancelled,” Mr Hunter said. "You may find yourself uninsured should the worst happen, and you suffer a life changing injury or illness.”

While the super funds will contact each affected member to offer them the ability to opt-in to insurance before it’s cancelled, Mr Hunter says many people will “slip through the cracks in this climate”.