Insurance in SMSF — Why you should care!

I read an interesting article in the AFR the other day. The basic premise was that Trustees of an SMSF should pay very close attention to their obligations and the types of insurance policies covering members.

As a result of changes made to the super laws from 1 July 2014, a superannuation fund is not permitted to own a new insurance policy if the event insured under that policy does not correspond with a superannuation condition of release.

This means that where an insurance policy is held through a super fund, and a claim was to pay out to the fund, the member must have access to the insurance proceeds.

The biggest concern could be in the area of Total and Permanent Disablement (TPD) 'Own' occupation definition. If an insured benefit is paid out, the proceeds may not be available to the member unless that member meets the ‘Any’ occupation condition of release, as required by super regulations.

Trustees are required to review their investments and insurances regularly.

The other area of concern is the approach the ATO is taking if a member has borrowed to acquire a property within the SMSF.

As advisers you may recommend the establishment of an insurance policy to repay the debt in the event a member was to pass away or become TPD’d.

The purpose of these policies may (now) not be considered to be consistent with the new regulations.

CRA Comment: We can provide advice regarding the right amount of life and TPD cover that should be held by members of an SMSF.

Our Statement of Advice can be used as part of an audit process offering Trustees a means of recording and confirming the amounts and purpose of cover. Our review process will assist in keeping insurance amounts relevant in the years ahead.

Protecting your clients protects your practice.

The Solution:

To ensure your clients have the right plan in place, it is important to seek advice from a risk specialist. Find out how CRA can provide insurance solutions.

Article sourced and written by Bryan Ashenden – Senior Manager, Advice Strategies and Knowledge, BT Financial Group.