17 Jul Insurance – what’s new for SMSFs?
For many years it has been an attractive proposition for trustees to take out insurance for members within their SMSF in order to take advantage of certain tax deductions whilst also providing additional benefits to the members or their dependents. So what’s new in insurance for SMSFs?
From 1 July 2011
From 1 July 2011, the full deduction for insurance premiums within super funds was modified, depending on whether the insurance was a life policy, a Total & Permanent Disability Policy or a bundled policy. If it was solely a life policy the 100% deduction remained available. If it was just a TPD policy a 67% deduction was applied to the premium. If the insurer bundled the 2 types of insurance together the super fund could claim 80% of the premium in it’s tax return.
From 7 August 2012
Considering the exponential growth in the set up of SMSFs in recent years, and as a result of the Cooper Review in 2010, the government was concerned that SMSFs were underinsured, so it became compulsory that Trustees of super funds were required to consider insurance for their members. This generally speaking, requires the provision of insurance for members of the superannuation fund to be considered by the trustee within the investment strategy of the fund. Your Registered SMSF Auditor should be checking that this is detailed in the investment strategy of the fund each year.
From 1 July 2014
The new regulations now limit the types of insurance that can be held within your superannuation fund, subject to some transitional provisions. From 1 July 2014 “OWN OCCUPATION” life insurance policies will not be held by superannuation funds.
Where in the past, own occupation insurance, was held by superfunds, because generally speaking these policies have a stricter definition but are more likely to pay, as the definition is restricted to the insured not being able to work in their OWN occupation rather than ANY occupation, the insurance payout was sometimes stuck in the super fund. The insured member may suffer an injury that entitles them to a payout of insurance, but the injury may not have met the more onerous definition of permanent incapacity under the condition of release rules.
New policies of insurance cover held within superannuation funds will now need to be consistent with the conditions of release such as death, terminal medical condition, permanent incapacity and temporary incapacity. Policies already held prior to 1 July 2014 will still be allowed.
Always check your super fund deed to ensure the trustee is able to take out TPD insurance and that the fund is able to provide a disability superannuation benefit. It’s a wise move by prudent trustees to keep the super fund deed up to date. To up-date your deed is very simple and inexpensive and gives you piece of mind that the fund complies with the current SIS legislation.
If you would like assistance with updating your super fund deed or advice regarding insurance within superannuation funds, please contact Catherine Price directly on 02 9520 7193 or catherine@tabs.net.au and Catherine will happily organise for a trusted, licensed adviser to discuss your own specific needs. .