Can an SMSF Pay Life Insurance Premiums?

Yes. An SMSF can pay premiums for life insurance cover held inside the fund, including Death cover and Death and TPD cover, directly from the fund’s reserves. The fund can generally claim a tax deduction for those premiums. Income protection premiums are paid by the individual member, not the fund, because that cover sits outside super under the SMSF Master Insurance Plan

How premium payment works inside an SMSF

When life insurance is held inside an SMSF, the fund itself is the policy owner. That means the fund pays the premiums, not the member personally. Premiums come out of the SMSF’s bank account, the same as any other fund expense, and they’re deducted at the frequency you’ve chosen — usually monthly, though annual payment under the SMSF Master Insurance Plan gets a 3% discount.

What’s deductible

The SMSF can generally claim a tax deduction for premiums paid on cover that exists to provide superannuation benefits to members. In practice, this covers Death only and Death and TPD cover held inside the fund. The deduction reduces the fund’s taxable income, which lowers the effective cost of cover.

This is one of the main financial reasons life insurance is structured inside super rather than outside — you’re paying premiums with pre-tax dollars at the fund’s 15% tax rate rather than post-tax personal income.

Why income protection is different

Income Protection under the SMSF Master Insurance Plan is structured as a non-superannuation policy, sitting outside the SMSF. This is deliberate. It means claim payments go directly to you rather than to the fund, so you don’t have to deal with superannuation release conditions when you actually need the money. The trade-off is that you pay the premiums personally rather than through the fund, but you get them as a personal tax deduction in the normal way income protection works