SMSF Income Protection
Income Protection is an important type of insurance for all Australians since it provides cover if you become injured or seriously ill and cannot work. Income Protection will pay you and your family up to 75% of your regular income for the period you cannot work. It can be hugely helpful in relieving financial pressures, covering medical expenses, and allowing your family to continue to live as normal.
SMSF Income Protection

Income Protection through your SMSF

Income protection insurance through SMSF is extremely important if you want to save for your retirement through self managed super funds. It is helpful at many levels. Your self-managed super fund (SMSF) can buy and manage your Income Protection for you, just as it does with Life Insurance and TPD insurance. The premiums for your Income Protection will come out of your accumulated fund and there will be no out-of-pocket costs to you. As a trustee of an SMSF, you should consider Income Protection for yourself and your members.

WHAT IS INCOME PROTECTION?

Income Protection is an important type of insurance for all Australians since it provides cover if you become injured or seriously ill and cannot work. Income Protection will pay you and your family up to 75% of your regular income for the period you cannot work. It can be hugely helpful in relieving financial pressures, covering medical expenses, and allowing your family to continue to live as normal. From school fees to mortgage; from travel expenses to groceries – insurance for income protection out of your self-managed fund is a ray of hope in the event of sudden injuries or serious illness.

You should consider Income Protection if you’re self-employed or a small business owner and the success of your work is based heavily on your ability to participate in its day-to-day operations. Income protection with SMSF allows you to manage your insurance responsibly and is a well-thought out move.   

Income Protection will generally provide you with regular payments for an agreed term from the date of injury (usually two years) or until you turn 60. This can change with the level of Income Protection you choose.

HOW IS INCOME PROTECTION DIFFERENT TO WORKER’S COMPENSATION?

Worker’s compensation will only provide you with benefits if you’re injured at work as a result of a workplace activity. Besides, these compensations are guided by several restrictions and may not be a sufficient cover for your regular expenses. If you’re injured at home or fall ill, you won’t be able to claim worker’s compensation. Hence relying solely on the employer’s compensation is not a wise decision.  

BENEFITS OF INCOME PROTECTION THROUGH YOUR SMSF

The two key benefits of buying Income Protection through your SMSF is that your premiums are tax deductible. And because they come through your accumulated super fund, there are no out-of-pocket costs to pay the premiums.

They can help you claim tax relief. 

They’re also individually beneficial if your tax rate is greater than your SMSF’s tax rate as you will be able to claim even higher deductions.

The right insurer can provide you with many more features of income protection in SMSF. Since this can be tweaked to suit your individual case, you can choose from the available waiting period which is usually a month to ninety days. You can also decide on the timeframe you want to enjoy the benefits for. In most cases, it is applicable either for a particular number of years or until you reach a specific age.  

Whatever the terms are, an insurance advisor can play to your strengths and help secure the policy in your favour.

DISADVANTAGES OF INCOME PROTECTION THROUGH YOUR SMSF

One of the key disadvantages of buying Life Insurance through your SMSF is that Income Protection is included in the concessional contribution cap, which is $25,000 a year.

There can be significant consequences for exceeding this cap. It’s important you talk to a qualified financial advisor to understand the concessional contribution cap and what it means for Income Protection through your SMSF.

Another disadvantage is that the payments from the SMSF to you in the event of a successful Income Protection claim may not come immediately. The level of cover you can achieve through your SMSF may also be limited.

CHOOSING A POLICY

Insurance is essential to any wealth-building strategy. Income Protection is essential to protect you and your family in the event that you’re injured or become ill and are unable to work. If you’re unsure how an Income Protection policy can be incorporated into your SMSF, a Wealth Smart advisor will be able to give you expert advice and ensure you’re protected at the most competitive price possible. Call us today to get your income protection through SMSF.

 

SMSF

Individual

Cover

The type of benefits can be limited

No limit on types of cover

Claims & payments

Subject to compliance from your SMSF trustee

Up to 30 days depending on your policy

Retirement

Premium payments from the fund reduces retirement funds – can be offset by making additional contributions

Does not directly affect your retirement

Taxes on premiums

Deductible within a super fund

Deductible for personal income tax

 

 

FAQ

Is income protection insurance tax deductible in SMSF?

We always recommend consulting your accountant for all tax related queries in relation to your SMSF. Generally speaking However, there is a 15% rebate for premium paid within a super fund. Income protection polices paid outside of the super environment are tax deductible at your Marginal Tax Rate. Again, speak to your account before making any final decisions regarding taxation.

Can SMSF pay for life insurance?

Yes, you are able to fund Life, TPD and Income protection cover through your SMSF. The same way that normal retail super funds can pay for super. You can set your SMSF as the policy owner and a claim will be paid to your SMSF also. The payment for your premium is simply paid from your SMSF bank account.

Do all super funds have income protection?

No, often clients believe that they have income protection within their super automoatically When they don’t. Automatically accepted polices within super can also be very limited. For example, they often have a 3 month waiting period or a minimal 2 year benefit period that does not cover long term illness or injury. The best way to ensure your policy covers you needs is to choose set the terms of the policy yourself and complete an application for your chosen policy.

How does income protection work with super?

Income protection within super works very similarly to a non super policy come claim time. Despite the fact that your premium has been paid from your super fund, the claim payment will be paid directly to your bank account upon a successful claim.

 

GETTING THE RIGHT POLICY FOR YOUR NEEDS
Insurance is essential to any wealth-building strategy. Income Protection is essential to protect you and your family in the event that you’re injured or become ill and are unable to work. If you’re unsure how an Income Protection policy can be incorporated into your SMSF, a Wealth Smart advisor will be able to give you expert advice and ensure you’re protected at the most competitive price possible. Call us today at 1800 765 100 to get your income protection through SMSF.