SMSF Life Insurance

Only approximately 13% of SMSF provide life insurance, total permanent disablement (TPD) insurance and temporary disablement cover within the fund for the members.

In 2012 regulation 4.09(2) announced that trustees of a SMSF are required to conduct a review of the funds investment strategy regularly and regulation regulation 4.09 (2) (e) requires the SMSF to document they have considered insurance as part of their strategy.

It is important to note that an existing insurance policy taken out by members outside super cannot be transferred to the SMSF, as the beneficial owner of the policy, on death, must be the “the trustees of the fund” and not dependants of the member. This means that on death, any claim paid by the insurance company must be to the SMSF trustees and not to the dependants of the member. The SMSF trustees can then distribute the insurance proceeds as per the governing rules of the fund either as per death benefit nomination of the member or as a pension to dependants or in any other prescribed manner.

Remember, that section 66 does not allow acquisition of an asset from members/relatives, so an existing policy cannot be transferred.

One big advantage is that life insurance premiums paid by the fund are 100% deductible. Most SMSF trustees fund life insurance premiums via the employer’s compulsory 9% superannuation or via salary sacrifice.

REMEMBER, the above are issues that auditors focus on when it comes to the audit of a SMSF. Our audits for funds start from $300 and follow a comprehensive audit plan.

DISCLAIMER: The above is general advice only, you should not act on this advice without consulting a professional adviser to discuss your personal circumstances.