If you’re an SMSF trustee who has deliberately kept a second account open in your old industry or retail super fund purely to maintain life and TPD insurance cover, you’re in good company. Many Grow SMSF clients do exactly this—particularly when health conditions make new underwriting difficult or when the group rates in their former fund still offer better value.
But here’s the reality check: under the Protecting Your Super (PYS) laws that have been in place since 1 July 2019, that SMSF old super insurance can be cancelled automatically if you’re not vigilant. No contributions or rollovers for 16 continuous months and—without a formal opt-in—your death and total and permanent disability cover disappears, even if money remains in the account.
We’ve seen this scenario play out too often. The story below (name and some details changed for privacy) was shared with us by an industry contact. Importantly, Brandon was not a Grow SMSF customer—his experience is a cautionary tale for any SMSF trustee juggling a legacy “insurance-only” account.
Brandon’s Story – A Wake-Up Call for Every SMSF Trustee
Brandon*, a 44-year-old self-employed architect from NSW and father of three, believed he had his family’s protection sorted. He paid around $350 a year for $358,000 in death and disability cover through his old industry fund. When he established his SMSF, he intentionally left a modest balance behind to keep that group-rate insurance in place—especially prudent given some pre-existing health issues that would have made replacement cover expensive or unavailable.
Life got busy. Sixteen months passed without contributions. His fund sent three warning emails. Brandon deposited $200 to keep things active, but he missed the final required step: the written opt-in confirmation. In 2023, Brandon passed away unexpectedly. The family later discovered the insurance had been cancelled months earlier. The financial gap left behind was heartbreaking.
This is not an isolated incident. SMSF trustees are often so absorbed in managing their own fund—investment strategies, property acquisitions via limited recourse borrowing, ongoing compliance—that the old “insurance-only” account quietly slips off the radar. The PYS rules were introduced to prevent unnecessary premiums from eroding small or inactive accounts. They achieve exactly that—which means they can catch even the most diligent people by surprise.
Why Many SMSF Trustees Retain Insurance in Their Old APRA-Regulated Fund
There are three common and entirely valid reasons people choose to keep cover in their former industry or retail super fund rather than transferring it immediately into the SMSF:
- Health underwriting challenges — Pre-existing conditions can lead to exclusions, premium loadings, or outright declinatures on new SMSF policies. Group cover in the old fund often doesn’t require fresh medical evidence.
- Cost advantages — Industry-fund group rates can still be more competitive than individual retail policies for life and TPD.
- Transition simplicity — When you’re already busy setting up an SMSF (and possibly gearing up for property purchases), retaining existing cover avoids one more immediate administrative task.
The ATO requires every SMSF trustee to consider insurance (life, TPD, and income protection) as part of the fund’s investment strategy. But that consideration doesn’t mandate holding it inside the SMSF—you can legitimately keep it elsewhere, provided you keep the policy active. SMSF old super insurance.
How the Protecting Your Super Laws Work in Practice
The PYS rules are clear and strict:
- An account becomes “inactive” after 16 continuous months with no contributions or rollovers.
- Funds must send written notices at the 9-, 12-, and 15-month marks.
- After 16 months, default insurance is cancelled unless you have submitted a written election (opt-in) to keep it.
- The opt-in is usually permanent (until you revoke it) and survives future periods of inactivity.
- Making any contribution or rollover resets the 16-month clock.
- Low-balance accounts (typically under $6,000) that are also inactive face an additional risk: the entire account may be transferred to the ATO, wiping out any remaining insurance.
Important: Simply logging into the member portal, viewing statements, or changing investment options does not count as activity under PYS. Only money moving in or a formal written opt-in qualifies.
Key Differences Across Major APRA-Regulated Funds
While the 16-month legislative rule applies broadly, individual funds have their own nuances around notifications, minimum balances, and opt-in processes. Here’s a snapshot based on the largest funds many Grow clients retain cover with (rules can change—always verify directly with your own fund’s Member Online portal, PDS, or customer service and check their latest guidance on Protecting Your Super):
- Hostplus follows the standard 16-month inactivity rule and sends notices at the 9-, 12-, and 15-month points. Members can elect to keep cover permanently via Member Online. The election continues indefinitely provided premiums can be paid from the account balance. (Source: Hostplus Protecting Your Super)
- AustralianSuper also applies the 16-month rule. They provide a simple downloadable “Keep your cover (inactive account)” form online. Once submitted, the election applies to your current Death/TPD cover and generates annual reminders. Cover can still cease if the balance is insufficient to pay premiums. (Source: AustralianSuper Keep your cover form)
- Australian Retirement Trust (ART – formerly Sunsuper/QSuper) uses a more conservative 12-month inactivity trigger for insurance cancellation. Members can submit an online form to keep cover even with no eligible contributions. (Source: ART Keep your insurance cover)
- UniSuper follows the 16-month PYS rule but generally requires a minimum balance of around $6,000 in accumulation accounts to keep fees reasonable and the account open. Insurance remains subject to inactivity rules. (Source: UniSuper keep your insurance)
- Aware Super aligns with the standard 16-month PYS framework. Like the others, sufficient balance is required to pay ongoing premiums, and members can manage cover via Member Online.
Common thread across all funds: Insurance will be cancelled if premiums cannot be paid due to low balance, regardless of opt-in status. Leaving $6,000–$10,000 is a popular “set and forget” strategy, but you must still actively manage the contribution clock or complete the formal opt-in.
Two Simple Ways to Protect Your Cover (Do One Today)
- Set up an annual direct debit contribution Even a modest $200–$500 once a year (timed before the 16-month mark) resets the inactivity clock and usually covers 12 months of premiums. Most funds accept BPAY, direct debit, or employer instructions.
- Formally opt-in / elect to keep cover Complete the fund’s online “Keep your cover” form or downloadable election. This one-off written step survives future inactivity and triggers annual reminders.
Pro tip: Update your contact details in the old fund and enable email/SMS alerts. Many cancellations occur simply because members miss the warning notices.
The SMSF Alternative: Bring Insurance Inside Your Own Fund
If monitoring a second account feels like unnecessary admin, consider moving the insurance into your SMSF. Grow doesn’t offer insurance directly, but we make it straightforward to obtain competitive quotes through our specialist partner Mortgage-Protect.
Mortgage-Protect specialises in life and TPD policies that can be owned and paid for directly from your SMSF. They compare multiple insurers, handle the application, and ensure full SMSF compliance. Many clients find the tax-deductibility of premiums inside the SMSF makes this option more cost-effective over time. Mortgage-Protect is a specialist insurance broker. They will obtain quotes from insurance companies on your behalf and present them to you to choose from and will assist with the application and underwriting process to get the policies in place. They cannot recommend specific policies or products, however if it is identified that you need a personalised recommendation or you have unique needs, they will refer you to a
Existing Grow customers can request quotes directly via the Grow Portal under Forms. Otherwise, get started here: https://growsmsf.com.au/get-insurance-quote/
(Obtaining quotes is entirely optional and independent of Grow.)
For more background on SMSF insurance, see our dedicated guide: https://growsmsf.com.au/smsf-insurance/
Final Thoughts on SMSF old super insurance
Don’t let your old super fund’s insurance become a silent liability. Whether you protect it with a simple annual contribution and formal opt-in—or transfer the cover into your SMSF via a specialist broker—deliberate action is the key.
As an SMSF trustee you already carry significant compliance responsibility. Make sure a forgotten legacy account doesn’t become the one that leaves your family exposed when they need protection most.
Important Disclaimer: Nothing contained in this article is financial advice. Insurance decisions are complex and personal. You should seek guidance from a licensed financial adviser for advice tailored to your individual circumstances. Grow SMSF Pty Ltd does not hold an Australian Financial Services Licence and is not authorised to provide financial product advice.
Ready to review your insurance strategy?
Contact Mortgage-Protect for SMSF-specific quotes or speak to your Grow SMSF accountant about documenting your insurance decisions in your fund’s investment strategy.
SMSF old super insurance FAQs
Q: Do I have to hold insurance inside my SMSF? A: No. The ATO only requires you to consider insurance as part of your SMSF investment strategy and document that consideration. Retaining cover in your old fund is perfectly acceptable provided you keep the policy active.
Q: What exactly counts as “activity” to stop my old fund cancelling insurance? A: Only contributions or rollovers into the account, or a formal written opt-in election. Logging in, changing investments, or updating details does not reset the 16-month (or fund-specific) clock.
Q: Can I leave just $6,000 in my old fund and forget about it? A: Not safely. While $6,000 is a common low-balance threshold, you still need to prevent inactivity or submit an opt-in. Insufficient balance to pay premiums will also cancel cover regardless of opt-in status.
Q: How do I opt-in to keep my insurance? A: Most funds provide an online “Keep your cover” form or election in Member Online. Once submitted, it remains valid until you cancel it. Always confirm the exact process with your fund.
Q: Is it better to move insurance into my SMSF? A: It depends on your age, health, occupation, and premium comparison. Mortgage-Protect can provide no-obligation, SMSF-structured quotes from multiple insurers.
Q: What happens if my old fund transfers the account to the ATO? A: You lose the insurance cover (and any other features). The ATO will attempt to reunite the money with an active super account, but the protection is gone.
Q: I’m setting up a new SMSF—should I roll everything over immediately? A: Only after you’ve secured replacement cover or confirmed you want to keep the existing policy active. Always obtain quotes first via Mortgage-Protect.
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