SMSF’s can be a great place to hold insurance, and more importantly, the super laws require any SMSF trustee to consider the insurance needs of SMSF members as part of the fund’s investment strategy.
Three types are usually available within a SMSF these include:
- Life insurance
- Total and permanent disability insurance (TPD)
- Income protection insurance
The purpose of Life insurance is that it provides a lump sum benefit to a beneficiary, third party or an estate in event of your death. This allows you to provide for the financial needs of your family in the event of death. In some cases, your benefit may be paid to you in advance should you be diagnosed as terminally ill. The premiums are tax deductible when owned by a SMSF but not if owned by an individual.
Total and Permanent Disability (TPD) Insurance
TPD insurance provides a benefit in the event of becoming totally and permanently disabled and assists with meeting ongoing financial commitments and any necessary medical care. The premiums are tax deductible when owned by a SMSF but not if owned by an individual. The definition of TPD can vary and is defined in each policy document. Furthermore, some policies allow you to obtain TPD as a standalone policy or as a rider policy to a Life insurance policy. The rider benefit is normally provided as an advanced payment of a death benefit.
This provides a monthly benefit to the person insured in the event that they are unable to work due to sickness, injury or accident. Income protection will provide cover up to a maximum of 75% of your gross annual income. There is no specific list of events for which you can claim on income protection, the ability to claim is very broad. Essentially if you are unable to work due to sickness or accident you can claim. Note that income protection policies do not provide cover for redundancy.
Deciding whether to hold your income protection insurance inside a SMSF or not will come down to your own individual circumstances. Owning in a SMSF has added burden as the trustee has to meet the requirements of the temporary incapacity condition of release before the income protection benefit can be paid to the member whereas, outside super, the insured person only has to comply with the terms of the contract. Income protection premiums are 100% tax deductible to a SMSF and to an individual.
If your SMSF invests in property, it is also advisable to consider landlord insurance. The owner of this policy needs to be in the name of the trustee(s) of the fund. If there is a LRBA in place, this policy also still needs to be in the name of the trustee(s) of the fund. This policy cannot be bundled with other business or personal insurances as all assets of the fund need to be kept separate to the assets
If you require a review of your insurance needs or would like a quote to place an insurance policy in your superannuation fund please email us at firstname.lastname@example.org.