Masterclass SMSF – Insurance in SMSF – What is possible and what is not

Masterclass SMSF – Insurance in SMSF – What is possible and what is not

Insurance in SMSF – What is possible and what is not

Part of the Trustee compliance responsibilities include consideration of holding insurance in SMSF but need to know what is possible and what is not (section 4.09 (2(e)) Superannuation Industry (Supervision) Regulations 1994). However trustees are not compelled to take it out, but provide evidence it was considered.

There are four differing types of insurance that Trustees need to consider.
1. Income Protection (Salary Continuance) Insurance
This provides a benefit if you’re unable to work due to an illness or injury and cannot meet ongoing financial commitments. The premiums are tax deductible to both the SMSF or individual. If the SMSF receives insurance proceeds the member will need to have temporarily ceased work due to physical or mental ill health, to be eligible to receive the benefit in the form of an income stream from the super fund and proof will apply.
2. Life Insurance
Life insurance provides a lump sum in the event of death to dependents and can help increase the amount payable to cover for loss of earnings and ongoing financial commitments. The premiums are tax deductible to the SMSF, but NOT to an individual. Life insurance is commonly provided together with Total and Permanent Disability (TPD) insurance.
3. Total and Permanent Disability (TPD) Insurance
Total and Permanent Disability (TPD) insurance provides a benefit in the event of becoming totally and permanently disabled.
The premiums are tax deductible to the SMSF, but not to an individual. However, the extent of the premium’s deductibility for the SMSF depends on whether the TPD insurance relates to ‘any occupation’ (
From 1 July 2014, the only definition that will be permitted will be the ‘any occupation’ definition, meaning the ‘own occupation’ definition of TPD will be prohibited from any new policies after July 1 2014 or ‘own occupation’ (which are grandfathered, can remain if set up before 1 July 2014).
‘Any occupation’ pays a benefit if the insured person is unable to be employed in any occupation for which they are reasonably qualified, educated or experienced, due to ill health. If the policy is based on ‘any occupation’, then the premium remains 100% tax deductible.
‘Own occupation’ is a policy which will pay a benefit if the insured person is unlikely to be employed in their own specific occupation due to ill health. If the policy is based on ‘own occupation’, 67% of the premium is tax deductible. Where a policy bundles TPD ‘own occupation’ with life insurance, the premium is 80% tax deductable to the SMSF.
Typically ‘any occupation’ policies often require a superannuation conditions of release so access to
any benefit payment is often not an issue.
4. Trauma Insurance
Trauma insurance is designed to pay out a lump sum of money if you are struck with a major medical event or condition covered by the policy.
The events and diseases vary between insurance providers and depend on what level of policy you buy, but typically cover – Heart attack, Stroke, Cancer, Loss of limbs, Quadriplegia. The premiums are not tax deductible to either the individual or to the SMSF. If the SMSF receives insurance proceeds that does not coincide with the member satisfying a condition of release
under superannuation legislation, the proceeds may be trapped in the SMSF until such time that the member meets a condition of release.

The advantages of Insurance in the SMSF

  • Contributions into the fund can be used to pay the insurance premiums;
  • Trustees can customise their insurance to suit their specific needs;
  • Assists with cash flow outside of super, personal living costs;
  • Net cost saving on premiums in some cases

The disadvantages of Insurance in the SMSF

  • Sometimes more expensive due to missing wholesale cost savings which commercial funds can access;
  • Members may need to qualify for insurance (via medical tests etc) which they were not subject to in a retail or industry fund.

Interested to know what self-managed super (SMSF) is all about, and if it is for you? Book for a FREE webinar with bonuses NEXT month Self Managed Super Fund Roadmap (all you need to know) for the next monthly event, see SMSF – FREE Seminar  or call us 0407 361 596.

Got questions? If you want experts who have years of helping others, without the hype – then call for a FREE strategy session today and also get your FREE Expert Guide – Self-Managed Super and You top right hand side above.

If you have any questions, why not give us a call – it’s FREE also! No obligation. 0407 361 596, Paul.


About SuperBenefitnews

Self-Managed Superannuation Service Providers in Australia. SuperBenefit will SET UP your SMSF and provide investment education for a better result. We take care of all your administration, accounting, ATO lodgement and audit of SMSFs, working with you and your advisors. If you want advice we can arrange one of our recommended advisors and accountants to meet with you, as we do not give advice, but take instruction only. Take control of your super, including property shares and other assets. Learn how to be your own advisor - make better decisions - by being mentored and coached to invest your own super wisely and strategically by qualified partners. Book to come to an event to find out more, or - Call us 0407 361 596, no obligation FREE strategy call.
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