The Un-Tapped Insurance Opportunity Of SMSF’s

SMSF insurance

According to recent changes in SMSF regulations, trustees are now required to consider insurance, which is offered for all members under the super fund that they are responsible.

Many Australians opt for establishing an SMSF so they can have a greater control over their own investment strategy, outcomes and portfolio. However, setting up an SMSF also involves addressing the ongoing underinsurance concerns. To succeed with your retirement planning, it is essential that you be prepared for anything that may become to happen. Having SMSF insurance in place will secure each member’s savings and investments in your SMSF from an unfortunate event of death or disability that may occur, whose dependents may rely upon financially.

With the recent changes that were introduced by the ATO, SMSF trustees are now required to consider SMSF insurance as part of their investment strategy. Trustees should also regularly review the investment strategy of their SMSF.

There are three types of insurance policies that the SMSF can purchase for its members:

  • Total and permanent disability (TPD) insurance
  • Life Insurance
  • Income protection insurance (this does not include redundancy cover)

Following are the four main benefits of an SMSF insurance.

1. Better Cash Flow

The biggest benefit and main attraction for having Life Insurance within your super fund is that your basic regular contributions to your SMSF will cover the expenses of the premiums for the Life Insurance. This can help by taking the pressure off your daily budgeting, as you don’t have to actually manage these payments as they will be deducted automatically from your SMSF account.

2. Tax Benefits

The three types of insurance policies are usually paid from income that has been taxed at a concessional rate. This wouldn’t be the case if these insurances were maintained outside the SMSF (under a separate policy).

3. Properly Protection

If you decide to invest in a property, particularly if through a LRBA (limited recourse borrowing arrangement), then life insurance will be particularly necessary. Without having life insurance, you may be forced to sell other investment assets in case a fund member pass away and no life insurance is available to make payment.

4. You Choose

As the owner of your life insurance policy withing your SMSF, you keep the advantage of choice and also the authority to whom your life insurance proceeds are divided. But there are always ongoing changes to SMSF policy and regulations which you as a trustee will have to constantly watch and be aware of.

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