Do your clients need to better understand SMSF Insurance?

When your client experiences an event that results in them being able to call upon their SMSF Insurance policy, their focus is on a successful application and receiving the proceeds of their policy.

In our experience, very few clients are informed during this claims process that the process for ultimately being able to access their insurance monies via their SMSF is a whole different kettle of fish.

Helping your clients better understand their SMSF Insurance, might just save them a whole lot of stress when they least need it.

So, what do your clients need to know about SMSF Insurance?

SMSF Insurance must be considered

Superannuation law requires the SMSF Trustee to consider whether insurance should be held by the SMSF for its SMSF Members. The decision about insurance needs to be recorded in the SMSF’s Investment Strategy.

SMSF Insurance must be held by the SMSF Trustee  

It is a breach to assign an existing insurance policy held by an SMSF Member and any new insurance policy should be held in the name of the SMSF Trustee ATF SMSF.

Some types of insurance cannot be held by an SMSF

Since 1 July 2014, it has been a breach for an SMSF Trustee to put in place a new trauma insurance policy for an SMSF Member or to take out an insurance policy for one SMSF Member but pay the premiums from another SMSF Member’s account (“Cross Insurance”).

The SMSF Trustee needs to decide which SMSF Member’s account to allocate premium payments to

The SMSF Trustee must allocate premium payments to an account of the insured SMSF Member. Where an insured SMSF Member has multiple member accounts, the SMSF Trustee has the choice of which account to allocate premium payments to. This choice can affect the deductibility of the premiums paid.

The SMSF Trustee may have a choice about deductibility when an SMSF Member dies or becomes permanently incapacitated before age 65

In the year a benefit is paid in respect of a permanently incapacitated or deceased SMSF Member under the age of 65, the SMSF Trustee has the choice of whether to deduct that SMSF Member’s insurance premiums or to take up a “future service benefit” deduction. To be eligible for a “future service benefit” deduction, the SMSF Member must have ceased work due to permanent incapacity or death and they must have paid insurance premiums in that same financial year. As an SMSF (not SMSF Member specific) deduction, the tax benefits flowing from a “future service benefit” deduction are enjoyed by all SMSF Members in accumulation phase.

SMSF Insurance Proceeds add to the SMSF Member’s Account premiums were paid from

In the year insurance proceeds are received for an insured SMSF Member, they are added to the SMSF Member Account that the premiums were paid from.

At Keep It Simple Super we have spent over 15 years helping Financial Advisers and Accountant deliver exceptional SMSF services to their clients. Keeping your clients happy and coming back each year is our goal. Book a discovery call with one of our team to see if we can help you create the perfect SMSF service for your business - Click here