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Insurance for Self Managed Superfund Members
When preparing your investment strategy for the superfund you are required to consider whether to hold insurance cover for each member of your SMSF.
Your SMSF can generally provide insurance for a member for an event that is consistent with one of these conditions of release of the member's super such as those below:
- Death
- Terminal medical condition
- Permanent incapacity (causing the member to permanently cease working)
- Temporary incapacity (causing the member to temporarily cease working)
Death - Life insurance
Tax Concessions: A key benefit of taking out life cover through a SMSF is the tax concessions. Members are generally able to claim insurance premiums as a tax deduction of the fund. However there are limitations on who can receive a tax free payout from a super fund life insurance benefit. There may also be differences in how that benefit will be taxed. For example, life insurance benefits paid from a super fund policy are generally only tax free if the beneficiary is a dependent such as a spouse, a child under 18, or anyone else who can be shown to have been financially dependent on the deceased. When the benefit is paid to anyone who is not a dependent, the amount can be taxed at 16.5%. Conversely, if the lump sum was instead paid to someone which includes what is known as an “untaxed element’ which is taxed at 30 per cent plus the Medicare levy.
As always, tax is complicated, for examples these tax rules do not apply to a life insurance policy which is held outside of a super fund so it is always important to discuss the benefits (and costs) of having insurance inside your SMSF.
Steve Wildes, Partner, Paris Financial
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