Nevertheless, lowering the cost of group insurance coverage by enforcing it for those not wanting it cannot be justified when the cost of the coverage is borne by members. The situation is different for some employer sponsored funds where an employer covers the cost of the insurance.

Group life insurance covering many people is a sensible and cost-efficient way of obtaining essential life and disability protection. It minimises the selling and administration costs of obtaining and providing the cover. But forcing all fund members to take out and pay for a minimum level of coverage penalises those who don’t want or need the cover.

The government’s action was response to criticism of how much the cost of compulsory insurance reduces the size of small superannuation accounts, particularly of part-time and casual workers. The cost of insurance and fund management fees can quickly erode small super account balances.

The compulsory superannuation arrangements which have resulted in many people having multiple small accounts haven’t helped. The level of insurance coverage required doesn’t vary with the number of superannuation funds an employee may have.

There’s a serious issue resulting from the fact that many Australians have inadequate levels of insurance cover to protect themselves and their families in the event of death or disability. But the compulsory cover in many funds is pitched at levels inadequate to cover the costs of serious events such as death or permanent invalidity.

At a personal level, even though it involves additional cost and effort, obtaining the required amount of death and disability insurance in a superannuation fund is a beneficial strategy. The cost of the coverage available in many funds is highly competitive and the big advantage is that the premiums are paid out of superannuation fund assets. Paying premiums in personal names reduces the funds available for living expenses and paying off a mortgage.

One reason for the low levels of insurance coverage in the general population is the squeeze on family resources and the focus on meeting essential non-discretionary outlays. Unlike with most other outlays, the returns for having insurance are intangible and may never result in a pay-out.

But unless the government wants to compel taxpayers to take out death and disability insurance cover, there’s no justification for any super fund being allowed to force fund members to pay for coverage they think they don’t want.

Daryl Dixon is the executive chairman of Dixon Advisory.