Self-managed superfunds and insurance – make sure you’re covered
By Michael Mekhitarian
It is a legal requirement for all super funds (including SMSFs) to prepare and document an investment strategy during the set-up phase. This strategy (including any insurance coverage) must then be reviewed regularly by fund trustees to ensure that it continues to meet member needs as they change over time. And, every year, compliance is checked during the annual audit of the fund by a licensed SMSF auditor.
Insurance
With specific reference to insurance, SMSF trustees must consider each member’s financial situation to determine whether they have an appropriate level of insurance cover.
Important considerations include:
- The member’s current level of personal debt,
- whether the member has any dependants, and if so, how those dependants could be provided for it the member died or became unable to work for any reason.
SMSFs are able to provide some levels of insurance cover through the fund, but it is not mandatory for them to do so.
However, if members choose to purchase insurance through the SMSF, then there are some benefits, including the fact that the premiums are tax deductible from the fund’s earnings in its annual tax return, on the proviso that the SMSF is listed as the policy owner and the SMSF member is the insured person.
Benefits of cover through the SMSF
In addition, premiums can be paid by the fund, so a fund member’s personal cash flow isn’t affected.
The insurance cover can usually be tailored to a member’s individual needs, and this tailoring can help to ensure that an SMSF fund member isn’t underinsured.
Some insurance providers offer policies specifically for SMSFs which take into consideration their size, but which also allow them to benefit from ’group’ insurance rates which can be a little less expensive than individual rates.
What types of insurance cover can be provided through the SMSF?
Beyond life insurance, total and permanent disability insurance and income protection insurance, SMSFs can also purchase insurance for property. If the SMSF has residential or commercial property investment assets, it’s imperative that these are adequately insured, to safeguard their value.
SMSF’s should also have trustee insurance, which is coverage that can help to protect an SMSF trustee’s personal assets from legal liability in the event of any serious breaches of their legal obligations.
SMSF insurance is a complex area, and it’s important to make the right decisions to ensure that the fund and its members are appropriately protected.
At ATB Partners, we recommend that anyone setting up an SMSF gets professional financial advice right from the start, to ensure that all legal obligations are met, as well as to ensure a sound investment strategy and to seek advice regarding insurance. Annual reviews for investments and insurance are also recommended.
If we can help, contact us.
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