Since August 2012, SMSF trustees are mandated by law to consider the appropriateness of life insurance for fund members. SMSF trustees are not required by law to take out life insurance, however they do need to consider if it is appropriate. Typical insurance consideration would include level of cover and the type of cover such as Life, total and permanent disability (TPD) and/or income protection (IP). **
To abide by the regulations, it may simply be a statement such as “ The trustees have considered the death and disability insurance needs for each member << insert reason for decision made here>>” on the SMSF’s investment strategy.
While members of SMSF may hold insurance outside of the superfund, it may be wise to consider holding the insurance through the SMSF. Some benefits in getting insurance through SMSF include the following:
- Since insurance premiums are a deductible expense, there may be tax advantages
- TPD insurance premiums are tax deductible to the SMSF which are not tax deductible to an individual. However the extent of deductibility will depend on the type of TPD insurance.
- Since insurance premiums are paid from the superfund, you may still be able to obtain cover even if your after tax income is tight
Some things to note however are:
- You cannot transfer existing insurance into your SMSF. A new policy must be taken out in the name of the superfund.
- The SMSF must be the legal owner of any insurance policies taken out. The SMSF will need to pay for the premiums out of its reserves and be the sole beneficiary of any claims proceeds.
- The SMSF needs to have enough money to pay the insurance premiums as they fall due.
- Since the SMSF is the beneficiary of any claim proceeds, the SMSF trustees will only be able to release these funds to members if they meet one of the release conditions set by the ATO. This may cause delay or even prevent members from receiving the money at the time of claim.
** However, since 1 July 2014, super laws do prohibit insurance that does not align with condition of super release, therefore much consideration and care should be taken when taking out TPD or income protection insurance so as to not be left with a situation where the claim proceeds cannot be released. This rule does not apply to insurance policies owned by the SMSF as at 30 June 2014.
Disclaimer: This information should not be considered personal financial advice as it is intended to provide general advice only. This factsheet has been prepared by Superhelp Australia Pty Ltd without taking into account your personal objectives, financial situations or needs.
The information contained in the factsheet may not be appropriate to your individual needs therefore you should seek personal financial advice before making any financial or investment decisions.