Guide to SMSFs And Insurance

SMSFs are becoming more and more common, but many people don’t realise that superannuation is not an investment. Instead, it’s a savings account to which employers contribute (on your behalf). This means that superannuation can be used as security for borrowing money for other things, like property development or business investment; however, because SMSFs were never designed to act as security on their own, they come with higher fees than other forms of loan.

There are many things to look at when looking at life insurance options. One of those aspects is whether a Self Managed Super Fund (SMSF) is a good choice for you and your family. In many ways, SMSF life insurance is better than other types of superannuation funds. It gives you more control over your money – although there are some potential downsides too. Here’s what you need to figure out before taking on an SMSF policy as part of your portfolio.

What Are The Rules?

SMSFs are usually established to pay for future health care. So including some basic cover for that eventuality makes sense. However, there are very specific rules regarding who can be covered by an SMSF and what appropriate level of cover. It’s also worth considering what happens if you transfer your assets back into a super fund, as it might make sense to maintain your insurance premiums as a regular contribution. In short, there’s no one-size-fits-all solution when it comes to insuring an SMSF – especially given the diversity of membership options available. For those reasons, advisers should carefully review their clients’ circumstances before advising on a plan of action.


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What Types Of Insurance Cover Are Can You Get Smsfs?

Different types of insurance cover can be arranged through a self-managed super fund (SMSF). These range from low-cost options that provide limited cover to more comprehensive policies. SMSFs also allow you to choose your own insurance provider. If you have a range of insurance needs, such as health and income protection and general property and liability, talk to an adviser about what policies can be held within an SMSF. This way, there’s no need to take out multiple policies with different providers or receive duplicate cover for yourself or your dependents. You can also roll over existing life and health insurance into your SMSF, so there’s no disruption in cover. Once you have registered with an adviser, they will help walk you through your existing insurance coverage and develop a strategy for protecting yourself in the future.

(1) Life insurance, (2) disability cover and (3) income protection insurance to members. All these policies are more likely to be outside of an SMSF’s investment objectives unless they were obtained under an exemption. This publication discusses these exemptions. It also addresses questions related to where insurance premiums paid by SMSFs must be reported for tax purposes. You should seek legal or other professional advice where appropriate.

Taxation Of Insurance Benefits

The treatment of these benefits for tax purposes depends on whether they’re received as a lump sum or as an income stream over time. Money received as a lump sum is counted as ordinary income and will be taxed accordingly. Payments made to you in regular instalments, such as monthly payments under an annuity contract, are taxed differently. Instead of being counted as income, they’re considered capital gains and will be taxed at half your marginal rate. Once you reach age 75, any such capital gains are entirely free from taxation.

Are SMSF Insurance Premiums That Competitive?

SMSF insurance premiums are lower than they have ever been. But you still need to shop around to make sure that you’re getting competitive quotes from multiple providers. While it might be tempting to pick up a quick quote from your bank or accountant. It’s important to make sure you’re not missing a better deal elsewhere. One way to compare insurance providers is by asking for a price versus risk comparison. This will let you understand exactly what type of risk each provider is offering. And how much they charge for that risk level. If you find that one fund has more competitive premiums than another does.But its policy is lacking in certain areas, ask for revisions or improvements before signing on the dotted line.

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