SMSF is one of the fastest growing sector in Australia and with a good reason. This fund offers so many benefits to its trustees including the freedom of making their own decision about how to manage and control their money. They are a number of other key benefits that comes from managing your own super including investment choice, flexibility, transparency, etc. All these benefits make trustees focus more on their retirement savings and pay very little attention to the insurance in SMSF. Holding insurance in SMSF can offer a lot of benefits to be paid to dependants in case of trustee's disability or death. Some of the advantages are:
- The trustee can customize the insurance according to your specific needs.
- All contributions that come to the fund lately can be used to pay the insurance premiums.
- As premiums are paid by the self-managed super fund it can assist with a cash flow outside the super.
- Net cost saving on premiums.
Generally, there are four different types of insurance in SMSF that all trustees should consider.
Income protection insurance
This type of insurance is beneficial in case the trustee is unable to work due of an injury or illness. The premiums are tax deductible to either the self-managed super fund or to the individual. In case tax rate of the trustee is greater than that of the super it will be more tax effective if the income protection insurance is held personally. In case the fund receives insurance proceeds, the member will need to cease work temporarily because of the mental or physical ill health so he can receive the benefit from the insurance.
In a case of a death, the life insurance will provide the dependants with a lump sum and can help raise the amount payable to cover for the loss of ongoing financial commitments and earning. The tax premiums are deductible to the super and not to an individual as in income protection insurance. Life insurance is always provided together with the TPD (total and permanent disability) insurance.
Total and permanent disability insurance
This type of insurance provides benefit in case the trustee become totally or permanently disabled and assists with any necessary medical care. The case with the premiums is the same as with life insurance. They all go to the super fund and not to an individual. The deductibility here depends on whether the insurance relates to ''own occupation'' or ''any occupation''. ''Own occupation'' policy will pay a benefit if the member is unlikely to be employed in his own specific occupation while the ''any occupation'' policy will pay benefit in case the member is unable to be employed in any occupation.
This insurance in SMSF is designed to pay out a sum of money in case the trustee get struck with a major medical condition. Conditions and illnesses covered by this insurance policy are a heart attack, stroke, cancer, loss of limbs, quadriplegia. The premiums are not tax deductible to either the SMSF or individual and the proceeds may be trapped in the super until the trustee meet a condition of release.