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Insurance cover in an SMSF

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SMSF Insurance

things to consider

Setting up an SMSF comes with many benefits and some risks. As property is considered an illiquid investment, (hard to sell) holding life insurance can be a great way of managing this risk to your SMSF and managing the debt on the property. In the event something happens to one of the members of the fund Life cover in an SMSF can be very beneficial.

The decision many new SMSF members face, is whether to maintain the insurance that they hold within a retail, industry or employer default fund or if applying for new insurance via their SMSF is a better option.

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Providers

SMSF Insurance

DIRECT – TV

No Medical Check
Expensive
Does Not Pay Out
Many Complaints
SMSF Insurance

MYSMSF

General Information
refer to a financial adviser
SMSF Insurance

ONLINE

Compares Price & Providers
Gets Expensive to Hold
No Service
Limited Advice

Comparision Table

Retail Super SMSF
Cheap
Life & Tpd* insurance is 100% tax deductible
Easy to obtain – No medical checks required
More comprehensive but requires medical assessment
Not as comprehensive as standalone insurance
Fewer barriers to access benefits
Barriers to access benefits
Approximately 10% -30% higher in cost
Insurance premiums are not tax deductible

Types of SMSF Insurance cover

Life Insurance

Life Insurance

Income cover is probably the most essential type of insurance cover because your income determines your standard of living, your ability to build wealth and your capacity to provide for retirement.The amount of cover is usually restricted to 75% of your gross salary. Premiums are tax deductible only when held personally. Income protection should not be held in super, but often industry fund members hold ‘salary continuance’ insurance which is a 2 year benefit period.The problem is in most instances is a claim cannot be accessed by the insured as a condition of release such reaching pension age ( 55-65) must be met for the release of money held in a super fund.
TPD cover

TPD cover

Income cover is probably the most essential type of insurance cover because your income determines your standard of living, your ability to build wealth and your capacity to provide for retirement.The amount of cover is usually restricted to 75% of your gross salary. Premiums are tax deductible only when held personally. Income protection should not be held in super, but often industry fund members hold ‘salary continuance’ insurance which is a 2 year benefit period.The problem is in most instances is a claim cannot be accessed by the insured as a condition of release such reaching pension age ( 55-65) must be met for the release of money held in a super fund.
Income Protection Insurance

Income Protection Insurance

Income cover is probably the most essential type of insurance cover because your income determines your standard of living, your ability to build wealth and your capacity to provide for retirement.The amount of cover is usually restricted to 75% of your gross salary. Premiums are tax deductible only when held personally. Income protection should not be held in super, but often industry fund members hold ‘salary continuance’ insurance which is a 2 year benefit period.The problem is in most instances is a claim cannot be accessed by the insured as a condition of release such reaching pension age ( 55-65) must be met for the release of money held in a super fund.
Trauma Cover

Trauma Cover

Income cover is probably the most essential type of insurance cover because your income determines your standard of living, your ability to build wealth and your capacity to provide for retirement.The amount of cover is usually restricted to 75% of your gross salary. Premiums are tax deductible only when held personally. Income protection should not be held in super, but often industry fund members hold ‘salary continuance’ insurance which is a 2 year benefit period.The problem is in most instances is a claim cannot be accessed by the insured as a condition of release such reaching pension age ( 55-65) must be met for the release of money held in a super fund.
SMSF Insurance

The problem with Insurance Cover in a retail/industry fund

The first hurdle is getting paid on your super insurance policy when its held in a retail/industry super fund. This may be subject to a medical assessment at the time of claim and in most instances, a claim once paid, cannot be accessed by the insured, as a condition of release such as reaching pension age of 60, must be met for the release of insurance proceeds for TPD and Salary continuance policies, which are held in a super fund. Where TPD cover is concerned, there may be tax consequences if the claim is before age 50 and or even under age 60.

Some things to consider with insurance policy structuring:

TIP: Most of these policies can be funded from a SMSF, but buyer be aware, that funding policies held outside or inside of super using super contributions can dilute your super savings, which can be detrimental to most members early retirement ambitions. Click this link for more information.

The Solutions

Option One

Sally is setting up an SMSF and has $150,000 life and TPD in two super funds. She has decided to rollover all her super and obtain insurance through her SMSF. If something happens to her she is aware that she will have NO insurance during this period. However, she applies for her new insurance via her SMSF, while she is setting up her SMSF, before her super rolls over from her retail fund. This will leave no gap in coverage and when her new insurance is approved she can complete the rollover of her super, thereby ceasing the cover automatically.

Option Two

John has $400,000 of life and TPD insurance in his retail super fund. John decides to maintain all the insurance held within his employer nominated super fund, by leaving $2,000 to maintain these policies till he obtains new cover in his SMSF.
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