If you feel like you are under-insured or stressed that you do not have an insurance policy, insuring your life, then you may want to consider establishing an insurance policy within your SMSF.

Similar to other super funds, SMSFs can only provide benefits under specific conditions, thereby limiting the scope of insurance coverage to situations aligning with these conditions. This typically encompasses various types of insurance, such as income protection (commonly referred to as salary continuance) for temporary disabilities hindering work, life insurance to support the deceased’s family, and coverage for permanent disability or terminal medical conditions, each defined by specific criteria.

There are several reasons why individuals opt to secure insurance through their super rather than pursuing personal policies. One advantage, particularly relevant for those in retail or industry funds, is the ease of accessibility and affordability facilitated by group arrangements where the trustee negotiates bulk terms and conditions for all members. However, this convenience doesn’t extend to SMSFs, where arranging insurance often involves comparable effort and cost to obtaining personal coverage.

An SMSF offers the flexibility to tailor insurance types and levels to precisely meet members’ needs, adjusting as circumstances evolve over time. Furthermore, the SMSF’s ability to claim tax deductions for insurance premiums presents another compelling incentive compared to personal insurance, where such deductions may not always be feasible.

From a cash flow perspective, utilising super contributions to pay premiums alleviates the burden on members to find additional funds monthly. Even if only one member contributes, the premiums for all can be covered from this cash flow without unfairly burdening others within the fund. Behind the scenes, accounting procedures ensure that each member’s insurance premiums are deducted from their individual member account.

However, to fully leverage these benefits, it’s crucial that the policy is owned by the SMSF, with premiums paid by the fund. Ownership and payment arrangements carry significant implications. For instance, in the event of a claim, the proceeds would be directed to the fund rather than directly to the member or their beneficiaries. While these proceeds are initially tax-exempt within the fund, they ultimately contribute to super benefits paid to members or beneficiaries, potentially incurring taxes depending on various factors.

If you are considering establishing insurance policies for yourself or someone in your family, and you have an existing SMSF or are looking to establishing an SMSF, then please contact Cadre Capital Partners to see if this would suit your situation.