What Insurance Options are Available Through My SMSF?

What is a SMSF?

SMSF stands for Self Managed Super Fund. Many people who have in excess of $250,000 in superannuation decide to manage their own funds so that they can choose and manage their own investments.

Having a SMSF also provides greater control on fees being paid, gives the ability to protect oneself against downturns in the market and allows the individual to actively participate in the setting up, implementation and investments the fund makes.

What types of insurance can I own through my SMSF?

You can own life insurance, total and permanent disability (TPD) and income protection insurance.

As of April 2010 the Australia Tax Office (ATO) has determined that trauma insurance can also be owned by a SMSF (refer to SMSFD 2010/1). Note however, that benefits paid become an asset of the fund unless you legally satisfy the condition of release. The benefit must be paid to the fund, otherwise the individual would be in breach of section 62 of the Superannuation Industry (Supervision) Act 1993.

Can I transfer my current policy into my fund?

You cannot transfer your current policy into your fund. According to the Section 66 (2A) of the Superannuation Industry (Supervision) Act 1993, a fund cannot take over an existing policy held by an individual. The fund can purchase a new policy on the life of a member, it is best not to transfer existing policies (even if owned by another entity) due to the potential breach of the Act.

The policy is in the name of the member, not the fund. What do I do?

The policy must immediately be transferred to the name of the fund, if the policy was incorrectly issued in the name of the member the ATO must be notified and they will work with you to arrange the change of ownership. According to Section 52 of the Act, SMSF’s are required to keep their assets separate from the assets of individual members.

If the policy was transferred into the fund, it must be cancelled immediately as it is contravenes the Act to transfer the ownership of an asset into the fund.

Are my premiums tax deductible?

Life insurance premiums are not tax-deductible for personal income tax, however premiums may be deductible within your SMSF.

It is important to note that if death benefits are paid to the fund and the beneficiary is not a dependent, then the benefit may be subject to tax. If the benefit payment is made to a dependent, then the benefit is not taxable, even if deductions were claimed on the premium.