SMSF Insurance

It’s a legal requirement for an SMSF Trustee to consider taking out insurance coverage for their SMSF (Self Managed Super Fund).

This is part of developing the SMSF investment strategy to set up an SMSF.

While it is not compulsory for SMSFs to provide insurance for their members, it can be necessary.

When deciding whether to take out SMSF insurance, trustees need to consider the needs and financial situation of each fund member. For example, how much debt they currently have and how they currently provide for their dependants.

What types of insurance cover can an SMSF take out for its members?

A self-managed super fund is generally eligible to take out cover for any of the following member events:

  • Death (life insurance). A lump sum is generally paid to the SMSF member’s beneficiary (or beneficiaries) when they die.
  • A terminal medical condition (often available as an additional potential benefit with life policies).
  • A permanent or temporary incapacity that prevents the member from continuing to work (disability or income protection insurance).

A self-managed super fund member will usually be required to undergo a medical exam for any cover to be approved by an insurance company.

Any self-managed super fund insurance policy must be taken out for the sole purpose of benefiting the insured or their beneficiaries, not any other independent member of the fund.

Any benefits payable under SMSF insurance policies must be paid to the self-managed super fund trustee for subsequent distribution.

The self-managed super fund pays for the cost of the premiums for any cover that is taken out on behalf of members. This obviously reduces the amount that is invested by the fund for each member in income and growth assets.

However, the SMSF can deduct the cost of these premiums from the income it generates and reports on its annual tax return each financial year. This will reduce the amount of tax it pays.

Can I have trauma insurance in an SMSF?

Generally, no.

Trauma insurance is usually paid as a lump sum if an insured person is diagnosed with a critical illness or injury that is specified in their policy.

These events commonly include heart attacks, strokes or cancer diagnoses.

These type of insurance payouts are usually made regardless of whether the insured person continues to work again or not.

These payouts therefore don’t always qualify as a superannuation condition of release. For that reason, they are generally not allowed to be included in the cover of SMSF members.

How we can help

There are multiple factors to consider when deciding whether an SMSF is a good option for you and how to structure it and manage it in the most tax effective way.

Our expert SMSF Accountants would be happy to speak or meet with you to discuss your situation. We’ll take the time to understand your circumstances and provide advice that maximises your financial position.

Contact us now.

This article is for general information purposes only and has not been prepared with reference to the circumstances of any particular person. You should seek your own independent financial, legal and taxation advice before making any decision in relation to the material in this article.