Q: I am a self-employed businessman with my own SMSF. I would like to know if I can arrange insurance (s), for example, death cover etc through my fund with the premiums paid from the fund. Could you recommend any companies that may supply these services?
The short answer to your first question is: yes, an SMSF member can purchase insurance inside a self-managed super fund, and more importantly, the super laws require any SMSF trustee to consider the insurance needs of SMSF members when drafting the fund’s investment strategy.
Note: Considering the insurance needs of SMSF members doesn’t mean that you must purchase insurance within your SMSF.
When running an SMSF, the super laws say the SMSF trustee must consider the insurance needs of all SMSF members when drafting the fund’s investment strategy. Note that an SMSF trustee is not required to take out life insurance cover for the members of the SMSF, assuming that the SMSF trustee/s consider the life insurance needs of the SMSF members are already catered for elsewhere.
If an SMSF trustee/member does decide to buy insurance within an SMSF he or she can expect it to cost more than if the person obtained the insurance under group cover offered from a larger super fund. Under a group arrangement, an employer is, or becomes, an employer-sponsor of the fund. Some SMSF insurance providers are now offering group-style insurance cover.
A SMSF member seeking individual cover is usually required to undergo a medical test before receiving insurance cover.
Note: Be sure the policy is in the fund trustee’s name (‘as trustee’) rather than in the member’s name only.
Three types of insurance are usually available within a super fund, including a self-managed super fund (SMSF). An individual can purchase the following types of insurance inside a super fund:
- Life insurance
- Total and permanent disability insurance (TPD)
- Income protection insurance
You can also research some of the policies offered by the larger super funds and see if you like the terms and conditions. You can then check the product disclosure statements for the life insurance providers. An insurance broker can shop around on your behalf for the best deal, but watch out if the broker is branded by one company because then you’ll only be offered products from one organisation, which may or may not be suitable.
Although mentioned earlier in the article, it is worth repeating that, unlike ‘group’ cover offered by large funds (which is available when you join via an employer), when applying for individual insurance cover, you’re likely to have to undergo a medical and pay more. We’re aware of some SMSF providers who have negotiated bulk deals on insurance cover for SMSF members.
Note: Life insurance premiums are not tax-deductible for personal income tax purposes, but premiums are deductible within a super fund.
More articles about superannuation and insurance
For more information on super and insurance see the following SuperGuide articles:
- Life insurance and super: 10 facts you should know
- Comparing super funds: Top 20 cheapest funds for life insurance
- Comparing super funds: Top 20 cheapest funds for income protection insurance
- Cost shock: Paying too much for insurance in your super fund?
- Comparing funds: Which super funds offer the cheapest insurance?
- Four reasons to buy insurance inside your super fund
- Life insurance: One in five parents will die early, or be too sick to work
- SMSFs: Can I transfer my life insurance to my DIY super fund?
- SMSFs: If I die young, will my wife pay super tax on the life insurance payout?
- SMSFs: Trauma insurance is not OK