The number of SMSFs is increasing with over one million members and 3600 SMSF’s established per month. However, many SMSF members fail to understand the importance of SMSF insurance.
The first consideration in starting an SMSF is “is an SMSF right for me?” and if yes, an SMSF is established. Many SMSF investors are quick to open a SMSF bank account and process their rollover from their industry or employer sponsored fund.
A key consideration prior to processing your rollover is your current insurance coverage as the transfer may result in insurance ceasing at transfer date. If you complete the transfer of whole balance form, you will lose your insurance coverage. Therefore, it is imperative to seek financial advice in relation to the benefits of SMSF insurance prior to processing the rollover and to ensure you are covered during the rollover processing time which should take two weeks. It may be beneficial to leave an amount in the account to cover insurance until you obtain SMSF insurance.
Recent trends and the experience of Redwood Advisory clients is the lack of awareness around Insurance coverage generally and SMSF insurance. We encourage clients to obtain advice on the benefits of SMSF insurance as opposed to existing coverage including a quotation for SMSF Insurance to enable the member to determine if SMSF is right for them.
The Cooper Review in 2010 found that only 13% of SMSF members held insurance. This is an alarming statistic.
But an equally significant trend has moved in tandem with this growth – the dropping away of insurance protection for SMSF members. We will be keen to review updated statistics given there are now more than one-million members of SMSFs.
Types of Insurance available to SMSFs
| Insurance | Inside Super | Outside Super |
| Death Cover |
Yes |
Yes |
| Income Protection Cover |
Yes |
Yes |
| Total and Permanent Disability Cover |
Yes |
Yes |
| Trauma Cover |
No |
Yes |
What are the benefits of SMSF Insurance?
The key benefit is that insurance premiums are deductible within a SMSF. This means that an SMSF can take out cover for Life, TPD and income protection and claim the premium as a tax deduction. Further benefits include:
- Trustees can customise the insurance to suit their personal circumstances, you have control over the sum insured
- Insurance is paid using your Superannuation balance which can assist with cash flow outside of super such as personal living expenses and personal debt
- Contributions of the fund can be used to pay premiums
On top of this, life insurance payouts made to dependants are tax-free, regardless of whether a tax deduction for premiums has been claimed or not.
It is important to understand the benefits of SMSF Insurance by talking to a SMSF Advisor for the key matters you should consider.
Disclaimer – The content has been prepared by Redwood Advisory Pty Ltd without taking account of the objectives, financial situation or needs of a particular individual and does not constitute financial product advice. This article should not be considered personal financial advice as it is intended to provide factual information only.
