What Happens to Life Insurance When Changing Super Funds?

Default cover vs cover you applied for

How your cover behaves when you change funds depends partly on what type it was:

• Default cover (the automatic stuff you didn’t apply for) ends when your account closes and doesn’t carry across in any form. The new fund’s default cover, if any, applies on their standard terms.
• Individually underwritten cover (where you applied and went through some health questions) also ends with the original account, but you may have rights to preserve the underwriting through continuation options or the Individual Transfer Option.

If you’ve got individually underwritten cover, you’ve got more options. The underwriting itself has value — it represents a decision the insurer has already made about you — and that value can be transferred. Default cover doesn’t carry the same portability.

Moving to an SMSF — what’s different

If your destination is an SMSF rather than another retail or industry fund, insurance works differently. There’s no “default cover” at an SMSF — the fund has to actively arrange its own insurance. That sounds like extra work, but it’s actually an opportunity to get cover designed properly for your situation rather than getting whatever default you happen to be assigned.

Through SMSF Insurance, your SMSF participates in the SMSF Master Insurance Plan — a group policy designed specifically for self-managed funds, underwritten by AIA Australia. Each member of the fund applies individually under the group arrangement. The application can use the Individual Transfer Option to preserve existing underwriting where the previous cover meets eligibility requirements.

For Death only or Death and TPD cover held inside the SMSF, the fund is the policy owner and pays premiums from its reserves. For Income Protection, the cover sits outside the SMSF as a non-superannuation policy — the member owns it and pays premiums personally.

The trustees’ insurance obligation

If you’re moving to an SMSF, you and your fellow trustees have a legal obligation under SIS Regulation 4.09 to consider insurance for fund members. You don’t have to obtain insurance, but you have to consider it, make a documented decision, and review it regularly.

In practical terms, this means setting up an SMSF triggers a formal insurance conversation your old fund handled for you on autopilot. As trustees, you’ll need to:

• Look at what insurance each member actually needs given age, family, debts, and obligations
• Compare what’s available — group vs retail, inside super vs outside super
• Decide on cover types, levels, and which members get what
• Document the decision in your investment strategy
• Review it regularly, especially when members’ circumstances change

The good news is this conversation is what SMSF Insurance is built for. The SMSF Master Insurance Plan is designed specifically for SMSF members and trustees — including the Individual Transfer Option, the group rate structure, and the cover types most relevant for self-managed funds.

Getting it right — the order to do things in

Whatever you’re changing to, the sequence is what matters:

1. Document what you’ve got — Current statement from your existing fund (dated within the last 30 days if you’re planning to use the Individual Transfer Option).
2. Look at what’s available — Either at your new fund or through an SMSF group policy.
3. Apply for the new cover — Using the Individual Transfer Option where you qualify, before doing anything with your old account.
4. Wait for confirmation — Cover under the SMSF Master Insurance Plan starts on the later of AIA’s acceptance and cancellation of your existing policy, so don’t cancel the old one until you have the new one locked in.
5. Initiate the rollover — Knowing your old cover will end when the account closes.
6. Confirm cancellation — With your old fund, to verify the account closure and cover termination happened as expected.