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Life Insurance and Self Managed Superannuation Funds (SMSFs)

May 9th, 2012 | Posted by Editor in Articles

The importance of considering Life and Total and Permanent Disability insurance as part of a self managed super fund (SMSF) investment approach may be gaining momentum after findings from the government driven Cooper review of the superannuation system.

With less 15 percent of SMSFs including life insurance within their fund, which is much lower than traditional superannuation funds where levels of insurance cover may be included automatically.

At present there are no laws that require SMSF trustees to include insurance as part of their investment approach, although no proposed commencement date the government may introduce an amendment that all SMSF trustees should consider Term Life and Total & Permanent Disability insurance.

In the event of a SMSF members death or disablement insurance benefits could provide a valuable solution to pay benefits to fund members or their beneficiaries or in some cases to extinguish debt in the event the SMSF has a borrowing arrangement.

Generally any insurance held within a SMSF is owned by the trustee and can be funded by using the cash from the funds current balance or by using contributions or rollovers.

Establishing Life and Total & Permanent Disability insurance within an SMSF may provide tax concessions, where insurance premiums may be deductible generally this does not apply to Trauma insurance.

Other strategies including salary sacrifice, personal, co-contributions, contribution splitting and spouse contribution may be beneficial.

In the event a SMSF member suffers an event in which a claim is paid, the proceeds are directed to the SMSF trustee and then onto the member, member’s estate or beneficiary subject to a condition of release being met, these include death, temporary or permanent disability.

The benefit paid may be in the form of a lump sum or income stream.

Having part or all of your Insurance cover including Term Life insurance and Total & Permanent Disability insurance may provide some tax advantages and reduce the impact of on their cash flow, it should also be taken into consideration that the funding of insurance through a SMSF balance may reduce the account balance throughout the term of the insurance cover.

This material is not intended to constitute personal advice, and must not be relied on as such. This information has been prepared without taking into account your objectives, financial circumstances or needs. Before making a decision based on this material, you should consider the appropriateness of this material having regard to your own objectives financial circumstances and needs. You should consider obtaining independent advice before making any decision.

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