Strategy for SMSF Plan

Trustees have a legal obligation to consider holding insurance to provide cover for their members should serious illness or injury occur. Since 7 August 2012, trustees of self-managed super funds (SMSFs) must also consider and document the insurance needs of their members  as a part of their investment strategy. This review should be done annually in case there are any changes to the circumstances of the fund and its members. The review should be documented and recorded an the annual trustee meeting minutes.

An SMSF Plan is a customised, easy to use product designed to offer SIS-aligned cover to SMSF trustees. This has the potential to reduce the compliance burden on trustees when selecting a product as the cover has been specifically designed to comply with the rules relating to holding insurance in super.
Note: SMSFs are not appropriate for all investors due to the time, cost and responsibility involved in managing and SMSF and because they are not cost competitive for lower account balances.

Why would you want to consider insurance? 

Building a secure financial future is important to most Australians. However, protecting the financial plan appears to be overlooked. According to research undertaken by KPMG for the Financial Services Council, 35% of employed people in Australia have no disability insurance at all and 19% of families do not have any life insurance. (Source: MET life – Apathy to Action 2014 04 28).

If you had a machine that gave your family $5,000 a month, would you want to insure it? What if the machine was expected to last for 40 years, but had a chance of a break down from time to time? Well for many of us that machine is the member, and the money is the income they earn. So if they had an accident, or became very ill, or worse, life insurance can provide them with a contingency plan during a difficult time.

Why would an SMSF want insurance?

Under the superannuation rules, trustees are required to consider the need to hold insurance to provide cover for members as part of the fund’s investment strategy.

Holding insurance in your SMSF can also provide a number of advantages. These include:

• to allow you to acquire appropriate levels of cover to protect you and your family should something happen without impacting on your personal cash flow

• the premiums will generally be tax deductible, potentially reducing the cost of the cover and making it more affordable

• to provide liquidity to allow a fund to pay benefits, or repay a loan, without needing to sell fund assets

Life insurance proceeds can be paid as a lump sum or income stream to member beneficiaries depending on their circumstances.