Benefits Of Having Insurance In A SMSF

If you are interested in setting up a retirement fun, you have surely heard about Self-managed superannuation fund (SMSF). Or maybe even already have one. SMSFs have become the largest type of retirement funds in Australia. Around 500,000 SMSFs, 964,000 members and over $1.6 trillion in assets were reported by Australian Taxation office (ATO) in December 2013. The numbers say a lot about the popularity of this super fund. Due to this, the government made an effort to introduce new superannuation regulations that allow members to cover their insurances with their own super funds.

Having insurance is vital for you and your family. It is a way of protecting your family against possible health and financial troubles. Now with the new changes, you can pay your insurance with your smsf. Before you do so, consider personal circumstances of other fund members, their assets, income and liabilities. Make sure you understand what are the advantages and the disadvantages of having insurance in a smsf, before you make the final decision. There are a number of reasons why you should get a smsf insurance. Let’s take a look at some of them.

Protection Of Members

With the money from your smsf fund, you can purchase 3 types of insurances: a life insurance, a TPD insurance and a standard income protection insurance policy. You should really opt for a life and TPD insurance if you as an smsf member are still working. In case of death or disablement, the insurance company will pay a lump sum to you or your family. Retired people should not be as concerned with smsf insurance as they have sufficient funds in their SMSF.

Tax Effectiveness

Another advantage of holding insurance through smsf is the fact that you will be able to claim a tax deduction for insurance premiums like terminal illness, permanent disability, income protection policies and even death. However there are some tax consequences you need to consider when getting a smsf insurance. In case of death, the lump sum that is paid to a child under the age of 18 or a surviving spouse is tax-free. If that same sum is paid to an independent child, then the money is subjected to tax.

Cashflow

Getting a smsf insurance means that you will not have to worry about finding any cash flow to pay the premium payments every year. If these payments cost more than the retirement balance, then the smsf member will need to increase the superannuation contributions to compensate for the difference.