For many Self Managed Superannuation Funds, Life Insurance cover can be included for members of the fund. It is common for an SMSF to include the option for Life insurance cover, certain types of Total and Permanent Disability (TPD) cover, and Standard Income Protection insurance.
It is important to note however, that there are downsides to sourcing Life Insurance through your SMSF. First and foremost, SMSF Life Insurance plans can come with limited levels of coverage and very narrow definitions of what is covered. This means that members can find themselves underinsured.
Here are some other issues to consider regarding the drawbacks of including Life Insurance in your SMSF.
- Tax Considerations– Tax is payable on some Life insurance and TPD benefits. If your children are over the age of 18 and intended beneficiaries of an insurance policy, it may be better to hold the policy in your personal name, rather than super to ensure they receive the full payment that they are entitled to.
- Access to Your Payout– A disability income insurance policy that is held in a SMSF may be entitled to a claim, however it can be difficult to get access to the money, and income payments can be stuck in the super account until you are a lot older or very unwell. Consider keeping disability income insurance policies in your name; the premiums are also tax-deductible to you.
- Your Type of Work – Total and permanent disability (TPD) insurance provides coverage if you were to become unable to work again due to a serious accident or illness. Depending on your occupation, it can be difficult to be successful in a claim. Many SMSF life insurance options offer “any occupation” coverage for TPD. The drawback here is that with “any occupation” coverage, if you can be employed to do a role, including something other than your specified occupation, you will likely not be successful in a claim.
- Super Contributions – If you hold insurance in super, it’s important to remember that unless you are topping up your super to offset the premiums being paid for the insurances, you are cutting yourself out of investment returns and reducing your long-term super balance.
Life insurance is an extremely important product that ensures yourself and your family can maintain your standard of living long into the future. However navigating the complex insurance market to find the right policy for you can be difficult and confusing. We have relationships with experience life insurance professionals who can help you source the policy that is right for your situation and your needs.
PSC Connect has a separate Life Insurance division: Connect Life, which is run by Jason Garde.
Connect Life Pty Ltd is a Corporate Authorised Representative of Certus Life Pty Ltd (AFSL 467443) ABN 99 169 526 363
Conditions apply for each policy and the information expected from you for a policy to trigger. Coverage may differ based on specific clauses in individual policies. Please ask your broker to explain the additional benefits and exclusions pertaining to your policy.
The information provided is general advice only and does not take account of your personal circumstances or needs. Please refer to our financial services guide which contains details of our services and how we are remunerated.