Life Insurance through your SMSF
Taking out Life Insurance through your SMSF is different from taking out Life Insurance as an individual – the fund acts as a mediator between your insurance provider and SMSF members and beneficiaries. It must be noted that some insurance companies do not allow for multiple insurance policies to continue both within the SMSF and outside of it. It is better to ascertain how SMSF and life insurance work before making a move.
Life Insurance through your SMSF

Life insurance through your SMSF

SMSF life insurance is the go-to insurance for trustees. SMSF trustees have the duty of care to consider Life Insurance for their members. The Federal Government has estimated only 13% of SMSF members have any kind of Life Insurance cover – exposing an alarming risk to the community. Avoid leaving your SMSF members in the lurch by opting for adequate cover through SMSF insurance. SMSF Life Insurance provides a lump sum payout in the event of the insured’s death or terminal illness. Make sure your members and their dependants are able to continue living a comfortable life. SMSF is witnessing a sharp rise in Australia and trustees are directed by law to review the insurance and look after member's insurance needs.

HOW DOES LIFE INSURANCE WORK WITH A SMSF?

Taking out Life Insurance through your SMSF is different from taking out Life Insurance as an individual – the fund acts as a mediator between your insurance provider and SMSF members and beneficiaries.  Since some insurance companies do not allow multiple insurance policies within the SMSF and outside of it, you should speak to your broker about ascertaining how the SMSF and life insurance will work before you sign the dotted line.

GENERAL LIFE INSURANCE

In the event of the insured’s death or terminal illness, Life Insurance will pay out a lump sum. As an SMSF trustee, you have the duty of care to determine whether SMSF members need Life Insurance.

Taking out Life Insurance as part of your SMSF can deliver a significant tax advantage, as super fund premiums are tax deductible if you’re self-employed or if less than 10% of your income comes from an employee position. This makes the SMSF and Life Insurance combination an attractive option for self-employed business owners who manage their own super.

Tax benefits related to Life Insurance are applicable to term Life Cover, TPD & Income Protection. While life insurance through SMSF is generally more cost-effective than a standalone life cover, some amount of tax is payable when the insurance comes under super funds.

To compare the differences between taking out Life Insurance as a SMSF or as an individual, view our table here.

For general information on Life Insurance, check out our helpful guide.

TPD

In case you’re totally and permanently disabled and unable to work again, Total and Permanent Disability insurance (TPD) provides a lump sum payment to cover the costs of rehabilitation, repayment of current debts and the cost of living for you and your dependants. Your self managed super fund comes to the rescue again.

You can only get Any Occupation TPD cover with your superannuation. Anyone with an ‘own occupation’ definition may fail to get a disability cover.

BENEFITS

TIPS

Self-employed? Life Insurance can be considerably more expensive for you than for a company employee. This is why it’s worth shopping around for SMSF providers who pass on bulk discounts to their customers.Group Discounts? Similar to a large super fund that provides policies at wholesale-cost to their members, some SMSF providers can negotiate bulk insurance cover deals for SMSF members. For a pocket-friendly SMSF life insurance cover, compare SMSF life insurance quotes and features from a number of providers.

HOW TO CONSIDER WHAT’S BEST FOR YOU – TERM LIFE COVER AND TPD

 

SMSF

Individual

Cover

Core benefits only

No limit on types of cover

Claims & payments

Subject to superannuation compliance

Subject only to 14 days

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

Not deductible for personal income tax

Taxes on payouts

Subject to tax under certain circumstances – up to 31.5%

Tax-free

 

FAQ

Is life insurance tax deductible in SMSF?

Always speak with your accountant in relation to tax matters. Generally speaking, life insurance within super can be tax deductible. The rate is 15%.

Can SMSF pay for life insurance?

Yes, you can pay for your life insurance premiums using your SMSF balance. In fact, you can generally use any super fund in Australia.

 

Choosing a policy
If you’re unsure how a Life Insurance policy can be incorporated into your SMSF, Wealth Smart advisers can help. Our industry knowledge and expertise will help you find the SMSF Life policy that is appropriate for you and your goals, ensuring you’re protected at the most competitive price available. Our industry expertise combined with your own research makes it easy to shortlist and finalise life insurance through SMSF providers. We will walk every step with you and help you secure your future. Call us at 1800 765 100.
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