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Life Insurance through your SMSF

SMSF trustees have the duty of care to consider Life Insurance for their members. The Federal Government has estimated only 13% of SMSF members have any kind of Life Insurance cover – exposing an alarming risk to the community.

SMSF Life Insurance provides a lump sum payout in the event of the insured’s death or terminal illness.

Three types of Life Insurance can be purchased by your self-managed super fund:

  1. General Life Insurance
  2. Total and Permanent Disability (TPD) insurance
  3. Income Protection insurance

How does Life Insurance work with a SMSF?

Taking out Life Insurance through your SMSF is different from taking out Life Insurance as an individual – the fund acts as a mediator between your insurance provider and SMSF members and beneficiaries.

General Life Insurance

In the event of the insured’s death or terminal illness, Life Insurance will pay out a lump sum. As an SMSF trustee, you have the duty of care to determine whether SMSF members need Life Insurance.

Taking out Life Insurance as part of your SMSF can deliver a significant tax advantage, as super fund premiums are tax deductible if you’re self-employed or if less than 10% of your income comes from an employee position. This makes the SMSF and Life Insurance combination an attractive option for self-employed business owners who manage their own super.

Tax benefits related to Life Insurance are applicable to term Life Cover, TPD & Income Protection.

To compare the differences between taking out Life Insurance as a SMSF or as an individual, view our table here.

For general information on Life Insurance, check out our helpful guide.

TPD

In case you’re totally and permanently disabled and unable to work again, Total and Permanent Disability insurance (TPD) provides a lump sum payment to cover the costs of rehabilitation, repayment of current debts and the cost of living for you and your dependants.

You can only get Any Occupation TPD cover with your superannuation.

Benefits

Tips
Self-employed? Life Insurance can be considerably more expensive than for you than for a company employee. This is why it’s worth shopping around for SMSF providers who pass on bulk discounts to their customers.

Group Discounts? Similar to a large super fund who provide policies at wholesale-cost to their members, some SMSF providers are able to negotiate bulk insurance cover deals for SMSF members.

How to consider what’s best for you – term Life Cover and TPD

SMSF Individual
Cover Core benefits only No limit on types of cover
Claims & payments Subject to superannuation compliance Subject only to 14 days
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 Not deductible for personal income tax
Taxes on payouts Subject to tax under certain circumstances – up to 31.5% Tax-free

Choosing a policy

If you’re unsure how a Life Insurance policy can be incorporated into your SMSF, Wealth Smart advisers can help. Our industry knowledge and expertise will help you find the SMSF Life policy that is appropriate for you and your goals, ensuring you’re protected at the most competitive price available.

Page last updated: January 23, 2015