What Are My Life Insurance Options Through an SMSF?
You can typically buy three types of life insurance policies through your SMSF - death cover, any occupation TPD, and standard income protection. Read more.
by Leigh-San Mo
Last update 15 Mar 2021
If you have a self-managed super fund (SMSF), you're not required to purchase life insurance through your fund, but it may be possible. In fact, the law requires you to consider the life insurance needs of your members.
Whether you've had life insurance through an SMSF before or you're not sure where to start, this guide is for you. We'll look at the pros and cons of purchasing life insurance through your SMSF and give you a few extra things to consider.
Self-managed super funds are a way to save for your retirement, just like any other type of superannuation. The difference is that members of SMSFs are also the trustees, who are essentially running the fund for their own benefit. It's up to fund members to comply with any super or tax laws.
According to the Australian Taxation Office, insurance through an SMSF can be provided for the following events, which meet the conditions of release for a member's super:
In general, you can purchase the following life insurance policy types through your SMSF:
The following policies are typically not available through an SMSF:
These restrictions are in place to protect members, because payouts from these policies can become trapped in a superannuation fund. The conditions of release would not be met, and therefore the member wouldn't be able to receive the benefits.
There are plenty of benefits to getting your life insurance through your self-managed super fund. Here are just a few.
There are a few drawbacks to buying life insurance through your SMSF that you should keep in mind when making a decision.
Purchasing life insurance through an SMSF can be surprisingly straightforward. The main caveat is that you need to find a policy that is available in an SMSF version. Premiums are typically the same as those purchased by individuals outside of a fund. However, check to see if any exclusions apply in order to meet superannuation requirements.
When you buy a policy for an SMSF, the fund trustees or the trustee company must be listed as the policy owner. List them "as trustee for" the fund.
Concessional contributions to your super are included in the fund's assessable income,and are viewed as 'tax-advantaged' contributions. These contributions are taxed at a concessional rate of 15%.
As of 1 July 2017, you can contribute up to $25,000 at the concessional tax rate. That means you're paying your life insurance premiums from tax-advantaged dollars, saving you money.
An SMSF is typically able to claim a tax deduction for insurance premium costs. This in turn can lower the tax payable on contributions and investment earnings, which means more money in your pocket.
Purchasing life insurance is a very personal decision, and what's right depends on your situation. Weigh up the pros and cons of life insurance through your SMSF, and be sure to check any exclusions, terms, and conditions so you understand what you're signing up for.COMPARE & SAVE
This guide is of an informative nature only and not representative of Compare Club products. It should not be taken as medical or financial advice. Check with a financial professional before making any decisions.