Superannuation and life insurance are similar in that they both provide for you financially when you may not be able to provide for yourself.
The law requires that as part of its Investment Strategy, all SMSF Trustees must consider whether the SMSF should hold a contract of Insurance that provides Insurance cover for one or more of its members.
Members may obtain Insurance through their SMSFs.
1. The Insurance Premiums are paid for by the SMSF, rather than, for example, the Member having to pay for them out of their own personal financial resources outside super.
2. The Insurance Premiums are tax deductible to the SMSF. Note that Life Insurance and Total & Permanent Disability Insurance premiums are not tax deductible in your personal name, but they are tax deductible if the policies are held in your SMSF. Income Protection Insurance is tax deductible in both your own name and in your SMSF.
SMSF members cannot hold Insurance in their personal names, then make the Insurance Premium payments from their SMSF Bank Account. In order for the SMSF to pay for Insurance Premiums, the Insurance Policy Owner must be in the name of SMSF with a specified Member named as the Insured person.
If you have an Individual Insurance Policy (that is, held in your own name and not in a super fund) and want this to be held by your SMSF under a similar policy, you must cancel the existing policy and arrange for a new policy in the name of the SMSF to be implemented. Before you do so, you must obtain advice about the risks and benefits of doing so. This can be important for a number of reasons, including if a member has developed an illness since obtaining the insurance policy: they may not be able to get a new policy. If a member does want to take out a new policy they can contact their insurer.
Clients will need to determine if an Insurance Product is appropriate for their financial situation based on their particular needs.