Trauma insurance inside SMSF
Trauma insurance inside SMSF is no longer available following new legislation that became effective on July 1 of 2014. Other forms of insurance such as Life Cover, Any Occupation TPD and Income Protection are still available through superannuation.
Every working Australian has a one in three chance of becoming disabled for more than three months before reaching retirement age (Actuaries Australia, 2000), and the statistics clearly illustrate the importance of covering what is, for most people, their most valuable asset – their ability to earn an income.
Indeed, at TAL Retail Life paid out more than $165 million in income protection claims in 2011 alone, which demonstrates just how much security income protection insurance can provide.
But while most advisers recognise the importance of income protection, one of the most frequent questions we get asked as I meet planners around the country is whether the policies should be held inside or outside super.
Of course, there is no easy answer – what is best for each client depends on that client’s individual circumstances.
But the ability of financial advisers to provide the sound advice to enable clients to make an informed choice is crucial.
Advantages of having insurance in a SMSF:
- Provides insurance protection for members
- Tax effective vs personal ownership
- Cashflow benefits of using accumulated funds in super to pay premiums
Disadvantages of having insurance in a SMSF:
- Premiums can be higher than group insurance rates
- Tax is payable on some Life insurance and TPD benefits
- Contributions to pay insurance premiums count towards Super Cap
- Using existing funds to pay premiums reduces retirement balances
- Restrictions on the features and benefits available
Insurance products a SMSF can purchase:
- Life insurance
- TPD insurance with an Any Occupation definition
- Standard Income Protection insurance policies
Insurance products a SMSF cannot purchase:
- TPD insurance with an Own Occupation definition
- Trauma insurance
- Comprehensive Income Protection insurance policies
If you would like to discuss further please give us a call on 1300 788 491.
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