SMSF Insurance obligations

SMSF Insurance obligations

Written by James Weir

James specialises in the theory and best practice of portfolio construction and management. His success within national and international investment banks led him to become a Co-Founder of Steward Wealth and he is a regular columnist for the Australian Financial Review.
December 16, 2013

Under new regulations, you have obligations to review insurance within your self-managed super fund.  As a trustee of a self-managed super fund (SMSF), you are now required to consider and document the need for insurance within your SMSF annually, by law1.

From 1 July 2014, new SIS regulations (4.07C and 4.07D) will come into effect to ensure that super fund members are only provided with insured benefits that satisfy the following conditions of release: death (including a terminal medical condition); permanent incapacity or temporary incapacity. In addition, SMSF trustees are now required to consider holding life insurance for one or more fund members as part of the fund’s investment strategy. This consideration includes whether the member has any existing insurance cover held inside the SMSF, in another super fund, or outside super and the level and type of those insurances.

Benefits of insurance in SMSF

  • Cash flow. Premiums are paid by the super fund with money it already holds, freeing up after-tax income.
  • Tax effectiveness. The insurance premiums are tax deductible to the SMSF providing an effective 15% tax saving which is a significant reduction in the annual premium. Life insurance and Total & Permanent Disability insurance is not tax deductible in your personal name.
  • Clear debt. As the prevalence of borrowing inside SMSFs increases, a fund’s ability to meet its loan repayments is becoming a far more significant consideration.
  • Pay out benefits. To ease financial stress when needed most.

How can Steward Wealth help?

Having an insurance strategy that best protects your investments and income is most important and we would welcome the opportunity to meet with you to review your insurance strategy. Through this review process, we can provide you with advice on how to best formulate, review and document your insurance considerations for the purposes of your SMSF trustee obligations and for your future financial protection.

1 Superannuation Industry (supervision) regulations 1994 –Reg 4.09 (2)(e)

This article reflects the views of the author and not necessarily the views of Steward Wealth.

This information is of a general nature only and nothing on this site should be taken as personal financial or investment advice, or a recommendation to buy or sell a particular product. You should seek advice from Steward Wealth who can consider if the general advice is right for you.

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