Insurance SMSF Changes update
From 1 July 2014, trustees of all regulated superannuation funds are prohibited from providing members with insured benefits other than those which satisfy the conditions of release for death, terminal medical condition, permanent incapacity and temporary incapacity. The objective of this measure is to ensure that if an insurer accepts a claim, the benefit can be released from the fund. Currently it is possible for a claim to be accepted by an insurer and for that benefit to be required to remain in the fund because it does not meet a condition of release.
It should be noted that any existing insurance arrangement in superannuation for existing members that was in place prior to 1 July 2014 will be “grandfathered” and are permitted. Furthermore, the transitional rules also allow a fund to adjust the level of insurance held under an existing policy.
Some of the consequences of the new provisions are:
- trustees will be unable to provide a member with trauma benefits from 1 July 2014, unless the member already had trauma cover prior to 1 July 2014
- permanent disability cover can only be provided on an ‘any occupation’ basis within a superannuation fund from 1 July 2014, unless the member already had permanent disability cover based on definitions which included, for example ‘own occupation’ prior to 1 July 2014
- trustees may need to check that the application of the cashing restrictions and definitions in the SIS Regulations allow the benefits provided under temporary incapacity insurance to be released from the fund.