Members moving their super from Australia to New Zealand under a new fund portability agreement will lose their life insurance cover.

The Trans-Tasman agreement will allow Australian fund members to move their super to a KiwiSaver account, and New Zealanders to move the other way.

NZ Financial Services Council CEO Peter Neilson says KiwiSaver has no life insurance component, so Australians will have arrange their own cover.

“We have suggested life insurance should be included in KiwiSaver and it could be funded through less than 1% of the contribution rate,” he told insuranceNEWS.com.au.

“Typically, people here have life insurance included as part of a home mortgage package so it is not a major issue.” 

Association of Superannuation Funds of Australia (ASFA) CEO Pauline Vamos says members should be warned of the risk before they consider transferring savings.

“It is important for any individual considering transferring their account balance from an Australian super fund to a superannuation account in New Zealand to consider the insurance implications,” she told insuranceNEWS.com.au. “Insurance cover can lapse with such transfers.”

Ms Vamos says buying life insurance through a super fund brings cheaper rates, tax advantages and ease of paying, because premiums are automatically deducted.

“We will be commenting on the proposed legislation and we want to see a reference to the loss of any insurance cover included in a transfer form,” she said.

“ASFA will also be encouraging Australian funds to clearly inform members who are seeking to transfer their account balance of the implications for their insurance cover.”

Ms Vamos says the association supports the Trans-Tasman proposal but fund members need to be informed of the implications.  

“Essentially, it will be up to each individual to decide whether transferring their account balance is in their best interest,” she said.

Financial Services Minister Bill Shorten says the loss of cover is no different from when members move funds in Australia.

“They are subject to the insurance coverage of the fund of which they are a member and would no longer have the cover offered by their previous fund,” a spokesman for Mr Shorten told insuranceNEWS.com.au.

The spokesman says members do not have to transfer funds if they think the level of insurance cover is insufficient.