Income Protection through Your SMSF
Your self-managed super fund (SMSF) can buy and manage your Income Protection for you, just as it does with Life Insurance and TPD insurance. The premiums for your Income Protection will come out of your accumulated fund and there will be no out-of-pocket costs to you.
As a trustee of a SMSF you should consider Income Protection for yourself and your members.
What is Income Protection?
Income Protection is an important type of insurance for all Australians since it provides cover if you become injured or seriously ill and cannot work. Income Protection will pay you and your family up to 75% of your regular income for the period you cannot work. It can be hugely helpful in relieving financial pressures, covering medical expenses and allowing your family to continue to live as normal.
You should considered Income Protection if you’re self-employed or a small business owner and the success of your work is based heavily on your ability to participate in its day-to-day operations.
Income Protection will generally provide you with regular payments for an agreed term from the date of injury (usually two years) or until you turn 60. This can change with the level of Income Protection you choose.
How is Income Protection different to worker’s compensation?
Worker’s compensation will only provide you with benefits if you’re injured at work as a result of a workplace activity. If you’re injured at home or fall ill, you won’t be able to claim worker’s compensation.
Benefits of Income Protection through your SMSF
The two key benefits of buying Income Protection through your SMSF is that your premiums are tax deductable. And because they come through your accumulated super fund, there are no out-of-pocket costs to pay the premiums.
They’re also individually beneficial if your tax rate is greater than your SMSF’s tax rate as you will be able to claim even higher deductions.
Disadvantages of Income Protection through your SMSF
One of the key disadvantages of buying Life Insurance through your SMSF is that Income Protection is included in the concessional contribution cap, which is $25,000 a year. There can be significant consequences for exceeding this cap. It’s important you talk to a qualified financial advisor to understand the concessional contribution cap and what it means for Income Protection through your SMSF.
Another disadvantage is that the payments from the SMSF to you in the event of a successful Income Protection claim may not come immediately. The level of cover you can achieve through your SMSF may also be limited.
|Cover||The type of benefits can be limited||No limit on types of cover|
|Claims & payments||Subject to compliance from your SMSF trustee||Up to 30 days depending on your policy|
|Retirement||Premium payments from the fund reduces retirement funds – can be offset by making additional contributions||Does not directly affect your retirement|
|Taxes on premiums||Deductible within a super fund||Deductible for personal income tax|
Choosing a policy
Insurance is essential to any wealth-building strategy. Income Protection is essential to protect you and your family in the event that you’re injured or become ill and are unable to work. If you’re unsure how an Income Protection policy can be incorporated into your SMSF, a Wealth Smart advisor will be able to give you expert advice and ensure you’re protected at the most competitive price possible.
© 2012 Wealth Smart Life Insurance