• where you place it – what is their payout record like?
• what level of cover and premium you want
• what definitions you have in your policy – will it be simple to make a claim?
With Industry and Retail Superfunds you generally have very little choice in respect of the quality of your policy or who that policy is held with. You are pooled together will all other members in the fund and offered a generic policy. Sometimes this may be cheaper, but it can also restrict the level of cover you want and may not fit your circumstances.
Your SMSF is able to hold the following insurance policies;
1. Life Insurance
2. Total and Permanent Disability Insurance (TPD)
3. Income Protection Insurance
Why insure through your SMSF?
There are two main reasons;
1. The insurance premiums are paid for by the SMSF rather than yourself. This saves personal cash flow.
2. The insurance premiums are tax deductible to the SMSF providing an effective 15% tax saving (Life Insurance and TPD Insurance are never tax deductible in your personal name).
Life Insurance provides a lump sum payment to your family upon your death or diagnosis of a terminal illness. Life Insurance is available as a policy on its own, or with TPD.
On death, the Life Insurance is paid to the SMSF Tax Free. Your SMSF then pays this to your beneficiaries in accordance with your wishes as set out in your Binding Death Nomination. If there is no Binding Death Nomination, the insurance is paid out at the discretion of the remaining fund Trustees.
Total & Permanent Disability Insurance (TPD)
TPD provides a lump sum if the insured suffers total and permanent disability. It can also be linked to your Life Insurance.
From 1 July 2014, only TPD with an ‘any occupation’ definition is permitted to be purchased by an SMSF.
An ‘any occupation’ definition insures you when you are unable to perform work in any occupation suited to your education, training or experience. Policies with other TPD definitions (e.g. “own occupation”) can no longer be purchased by your SMSF.
Any existing TPD insurance arrangements that were in place prior to 1 July 2014 will be ‘grandfathered’ and are still fine.
Upon claiming TPD the payout is made to your SMSF tax free. The benefit can in turn be paid to you as a lump sum or pension under the permanent incapacity access provisions.
Income Protection Insurance
Income Protection Insurance can provide you with an income in the event that an illness or injury prevents you from working. You can insure up to 75% your normal income and it can be payable up to the age of 65.
Income Protection Insurance is tax deductible to your SMSF but also to you in your own capacity.
Having the policy in your own name will provide you with a larger tax deduction where your marginal tax rate is greater than the SMSF tax rate of 15%.
The only advantage in having Income Protection Insurance owned by your SMSF is that the SMSF will pay the premiums for you. This means you won’t have to find the cash yourself.
Upon claiming Income Protection Insurance, the payout will be paid to your SMSF. The SMSF pays tax at 15% on the payout. The benefit can in turn be paid to the member as a pension only under the temporary incapacity access provisions. The payout is in turn taxed at the member’s marginal tax rate on receipt less a 15% rebate. Practically this means that the tax on the payout will be the same whether the Income Protection Insurance is owned by you or the SMSF.
For this reason, we recommend that most of our clients hold income protection insurance in their own name.
Trauma Insurance covers you against defined health events including heart attack, cancer and stroke. Many polices have over 50 such events defined. Trauma Insurance is paid as a lump sum.
From 1 July 2014, SMSFs are not permitted to purchase Trauma Insurance on behalf of members. Any existing Trauma Insurance Policies as at 1 July 2014 will be ‘grandfathered’ and are fine.
Upon claiming Trauma Insurance, the payout will be trapped in the SMSF. There are no provisions in the SIS Act to allow you to access the payout unless a condition of release is met (for example: retirement).
For this reason, Trauma Insurance should only be taken out in your personal name to ensure you can access it when you need it.
At Super Initiatives, we can arrange quotes and cover for all of the above insurances.
We have access to a huge variety of quality products on the Australian market.
In addition, we are able to assist with general insurance in respect of the assets in your fund including;
• Property – residential and commercial
• Collectibles (art, cars, jewellery, antiques, wine)