Frequently Asked Questions
Your SMSF Insurance questions answered
Wondering how it all works? Want to know what SMSF Insurance can do for you? Take a look at these Frequently Asked Questions for information about the rules and regulations on insuring your fund’s assets, and the financial benefits of buying life insurance through your SMSF.
If you still have unanswered questions, just send us an enquiry through our quote form and we’ll be straight in touch.
What types of insurance can I buy through SMSF Insurance?
We offer a comprehensive range of SMSF insurance products specifically designed to meet the needs of your SMSF and its members.
Under our SMSF group life insurance policy your members can apply for a tailored life insurance package including the following types of cover:
- Death cover, which provides a lump sum benefit to beneficiaries of the SMSF if an insured member dies or is diagnosed with a terminal illness.
- Total and Permanent Disability insurance, which provides a lump sum payment to enable a member to support themselves and their family if they are seriously ill or injured.
- Income protection, which provides an ongoing source of income to support members while they recover from an illness or injury.
We also offer a suite of specialised SMSF insurance policies to safeguard your fund’s physical and financial assets and protect your Trustees from any liabilities they incur while performing their duties.
- Trustees liability insurance enables your Trustees to defend themselves if a claim is made against them as a manager of your SMSF.
- Audit protection insurance finances the administrative and advisory costs of an Australian Tax Office (ATO) audit and protects the fund against potential fines and penalties.
- Property insurance fulfils financing and ATO requirements to adequately insure all the assets of your SMSF.
What do I have to think about when I buy insurance through my SMSF?
The most important consideration is the needs of your SMSF and its members. The trustees of your SMSF have a clear obligation to safeguard the assets of the fund, so they need to take every possible precaution to protect and preserve its value. Your SMSF’s insurance needs will vary depending on whether you have invested in property, vehicles or collectibles and whether your members already have adequate life insurance cover in place outside the SMSF.
The rules governing the management of SMSFs are becoming increasingly complex, and the penalties for a breach of regulations can be severe. You may wish to consider protecting your SMSF and Trustees from the impact of an audit or mismanagement claim, with audit protection and Trustees liability policies.
If you are considering purchasing life insurance through your SMSF, you should consider the individual tax position of each member. There can be some substantial financial benefits to structuring life insurance through an SMSF, but there can also be some pitfalls, so it’s vital that the ownership structure of your insurance is established correctly.
If you are planning to replace existing insurance cover you should bear in mind that it may take some time to set up your new policies. It’s important to make sure your current arrangements remain in place and that you are able to keep up premium payments until your new insurance cover has been established.
How safe are my policies? Will I still be covered if something happens to SMSF Insurance?
Our SMSF group life insurance policies are underwritten by AIA Australia, one of the country’s leading life insurance specialists. AIA Australia is a valued part of the AIA Group, an independent global insurance provider with over 24 million policies in force and assets of almost US$120,000 million.
Your SMSF audit protection insurance, SMSF Trustees liability insurance and SMSF property insurance policies will be placed with the underwriter who is best able to meet the specific needs of your SMSF. We work only with highly-rated, reputable insurance providers and have strong relationships with every major insurance company in Australia, so we can ensure that you receive the best possible terms of cover and premium rates for your insurance.
All insurance providers in Australia are overseen and audited by the Australian Prudential Regulation Authority (APRA), which sets strict regulations to ensure they remain financially sound and can afford to meet their claim obligations. Should your insurance underwriter run into financial difficultly despite APRA’s close supervision, your policy would be transferred to another underwriter and your insurance cover would remain in force.
How do I pay the insurance premiums on my SMSF insurance policies?
Your SMSF must be the sole legal owner of all its insurance policies, including any life insurance purchased for your members through the fund. All premiums must be paid for out of the reserves of the SMSF, and neither the Trustees nor the members are permitted to make premium payments on the fund’s behalf.
If your fund receives regular investment income then this money can be used to pay for your insurance premiums. However, if this is not the case then the members of your SMSF will need to make regular contributions in order to finance the premiums, otherwise the investment balance will decrease.
If the Trustees have opted to invest most of the SMSF’s funds in non-liquid assets such as stocks or property they will need to make sure that there is enough money available to pay for premiums when they fall due. It is important to bear in mind that there may be limits on the contributions members are able to make, so it might not be possible for members to make top-up contributions if there isn’t enough cash available to pay for premiums.
What happens if my SMSF has insufficient funds to pay premiums?
It is extremely important that you ensure your SMSF has enough money available to finance your insurance premiums as they fall due. The Trustees or members of your SMSF are not permitted to make premium payments on behalf of the fund, and failure to keep up with payments will cause your insurance policies to expire. Your SMSF Trustees will need to plan ahead for insurance payments, since there may be limits on the members’ ability to make top-up contributions if your fund’s cash balance falls short.
Under our SMSF group life insurance policy your SMSF has a 60 day ‘grace period’ if it falls behind on a premium payment. After that point, your group policy will lapse and the insurance cover for all members will cease. If this happens each member of your SMSF will need to reapply for insurance cover under a new group policy, with the terms and premium rates of the new policy being based on the health and financial status of each member at that time.
If you have SMSF property insurance policies there may be additional legal considerations:
- It is an ATO requirement that you have adequate insurance in place for any collectible assets owned by your fund. If your policies lapse and the SMSF is left without insurance cover, it will be in breach of these rules, which could lead to severe penalties for the fund and the Trustees, and the forced sale of the assets.
- If your SMSF owns commercial or residential property which has been leased or rented out then you may have a contractual obligation to maintain property and landlord insurance policies. Insurance is also likely to be a fundamental requirement of any bank funding your SMSF has taken out to finance the purchase of these assets.
How do I make a claim on my SMSF insurance?
Your SMSF will be the legal owner of the insurance policies, including members’ life insurance, so any claims must be made by the Trustees on behalf of the fund or its members. This may also be the case for any TPD or income protection elements of SMSF members’ life insurance which are held outside the SMSF, where the SMSF is the legal owner of the overall insurance plan.
For claims under your SMSF group life insurance policy, email our claims team at [email protected] and we will guide you through the claims process. Depending on the type of claim the Trustees will need to provide either a death certificate or medical reports, and may be asked to supply additional records or documentation. For SMSF TPD or SMSF Income Protection claims the sick or injured fund member may also be required to attend medical assessments or appointments with specialists. Since the SMSF will be the beneficiary of any claims proceeds under death cover or superannuation TPD cover, the Trustees will only be able to release these funds to members if they meet one of the release conditions set by the Australian Tax Office.
For claims under your Trustees liability, audit protection or property insurance policies, email us at [email protected] for details of how to make a claim. You will need to provide evidence to support your claim, such as ATO correspondence, legal documentation or incident reports, plus details of any expenses or penalties you have incurred. It is important that you contact us as quickly as possible if you think you will need to make a claim, so that we can guide you through the process and advise you on what documents you’ll need to provide.
How quickly will I receive my money if I need to make a claim?
The speed with which your claim can be processed will depend on the type of claim you are making and the documentation you need to provide. Our claims team will guide and support you throughout the claims process, helping you to keep track of what you need to do and make sure you have provided all the necessary information to ensure your claim is handled quickly.
For SMSF life insurance claims, the Trustees will have to make the claim on behalf of the member, and the SMSF will be the recipient of any proceeds under a death cover or superannuation TPD claim. The Trustees will only be able to pass on any payments made under these policies to the member if one of the ATO’s release conditions are met, which may cause delay or even prevent members from being able to access the money at the time of the claim.
If you are a Trustee as well as a beneficiary of your SMSF it’s essential that you keep these roles separate at all times. You are required act in the interests of the fund whenever you are making decisions as a Trustee. This means that you will have to follow the strict guidelines on when and how you may release the proceeds of a life insurance claim, regardless of your personal circumstances.
If you are making a claim under the income protection element of your SMSF group life insurance policy you won’t be able to receive any payments until the end of the 30, 60 or 90 day waiting period you selected.
If you need to make a claim under your SMSF Audit Protection or SMSF Trustees Liability Insurance policy, you may need to provide ATO or legal correspondence and evidence of any legal, accounting or administrative costs you have incurred. For property or landlord insurance claims you will need to provide police or incident reports and may need to arrange for an independent assessment of any damage.
What happens if my SMSF insurance needs change?
A built-in benefit of our SMSF group life insurance policy is a ‘life stages’ clause, which allows members to increase the level of their death cover, TPD insurance or income protection cover at pivotal moments in their life, without the need for additional underwriting. Major changes of circumstances including marriage or divorce, the birth or adoption of a child and the taking out of a mortgage can trigger your members’ right to review and update their life insurance needs.
For SMSF property insurance policies, we can provide you with flexible insurance cover which changes and grows with your portfolio. You are not required to have an individual policy in place for each of the SMSF’s assets, and we can offer you an adaptable group policy which covers all your fund’s collectible assets. Simply contact us whenever you purchase or sell an asset through your SMSF, and we can adjust your cover accordingly. It is essential that all the assets of the fund are clearly identified on your insurance policy, and it is not possible for members’ or Trustees’ personal assets to be insured under the same policy.
You may need specific policies for any residential or commercial properties or vehicles owned by the fund, especially where there is financing attached. If the value or status of one of your SMSF’s assets changes, we advise you to contact us as soon as possible to discuss an increase or decrease in the level of your cover.
Do I have to have life insurance in my SMSF portfolio?
SMSF regulations require Trustees of SMSFs to reassess their fund’s investment strategy on a ‘regular’ basis. From August 2012, new rules were introduced that extended the requirements of the investment strategy review, and all Trustees are now required to consider whether it would be appropriate to purchase life insurance for the members of the fund. A written record must be kept of your decisions.
These rules don’t mean that life insurance is compulsory for all SMSFs, only that, as Trustees, you must consider and document an insurance strategy. You should consider the needs of every member of the fund and your decision may be different for each member, depending on their age and life stage; and whether they already have life insurance arrangements in place outside of the SMSF. It may be appropriate to replace existing insurance through the fund, as there can be powerful financial advantages, but this may not always be the case, especially if a member’s health has deteriorated since their original arrangements were put in place.
At SMSF Insurance we can offer excellent takeover terms for your members existing life insurance policies, if you decide to replace them.
Can I transfer my existing life insurance policies into my SMSF?
You cannot transfer the ownership of existing life insurance policies into your SMSF, but we offer exceptional takeover terms if your members choose to replace their existing retail or superfund life insurance arrangements with our SMSF group life insurance plan.
We will match the existing cover and underwriting conditions of your SMSF members’ death cover and TPD insurance up to a limit of $2,000,000, and up to $20,000 per month of income protection insurance.
It can take some time to set up your new policies through your SMSF and to transfer the balances from your members’ former underwriters, so it is important that they ensure there is sufficient funding available to cover the premiums on their existing policies until all the arrangements have been made.
Find out more about our takeover terms for existing life insurance policies.
How much will my SMSF life insurance premiums increase as I get older?
Each member of your SMSF can apply separately for life insurance cover under your SMSF group life insurance policy. Each applicant must take out a minimum of $50,000 death cover and can add optional TPD or income protection elements.
The premium rate, cover level and cover expiry dates for each member will be different, based on their health, financial circumstances and age at the time of application. Various factors can have an impact on the cost of a member’s premiums, including the type and level of cover they choose to take out and the risks involved in their job or lifestyle.
All members will pay stepped premiums under our SMSF group life insurance policy, which means that premiums will increase for each member as they get older.
What happens if a member of my SMSF leaves the group insurance plan?
Each member of your SMSF group life insurance plan will receive individual insurance cover, with cover expiry dates based on their age.
If a member insured under your group policy makes a claim, leaves the fund, cancels their insurance or reaches retirement age, the cover for the remaining members will not be affected. The addition of new members to your SMSF group life insurance policy will also not affect the arrangements already in place for existing members.
SMSF Income protection insurance will cease for each member once they reach age 65, while Trauma and TPD cover will expire at 70 and death cover will expire at age 80. Cover for an individual member will also expire if they leave the SMSF or decide to cancel their insurance. Cover will be cancelled for all members if the SMSF fails to keep up with premium payments, if your fund ceases to be a qualifying SMSF, or if the group policy is cancelled by the SMSF.
What are the financial benefits of buying life insurance through my SMSF?
There can be a number of advantages to structuring your life insurance through your SMSF. However, it is important to consider the individual circumstances and tax position of each member before deciding whether to purchase life insurance through your SMSF.
The main benefits of SMSF life insurance include:
- Since all premiums must be paid by the SMSF rather than by members or Trustees, purchasing life insurance through the fund can offer your members a substantial cash-flow benefit, especially if the fund receives regular investment income which can be used to finance the premium payments. If the fund does not have a regular income members will need to make contributions to cover the cost of premiums, but this can be done at their convenience when they have the cash available, provided that there is enough money available in the fund to pay each premium when it falls due.
- In many cases, superfund contributions are taxed at concessional rates, which can make members’ insurance premiums considerably cheaper than they would be on a directly-owned policy. This structure effectively allows members to get a tax deduction for premiums which they could not normally claim, a particularly valuable benefit for higher rate tax payers.
- The SMSF group life insurance policy offers even more competitive rates than individual life insurance policies, since we are able to offer you comprehensive insurance for all your members at wholesale prices.
- Your SMSF may be able to claim deductions on members’ TPD premiums, which they would not be able to claim as an individual, making this element of life insurance cover even more cost-effective.
- There is a unique tax advantage available to SMSFs which may allow your Trustees to claim a one-off tax deduction for the fund when it receives a TPD or death cover payment.
The main potential pitfall of buying your members’ life insurance through your SMSF is that the fund must be the sole beneficiary of any claims proceeds, and Trustees can only distribute these funds to members in accordance with the SMSF regulations (for example, satisfying the conditions of release). This could delay access to insurance payouts.
Choose your SMSF insurance type
We’ve got a range of SMSF Life Insurance and General Insurance products.
We understand that everyone’s needs are different, so we created a smart, flexible insurance plan which can be customised for each of your members.
Income protection offers your members the assurance of a regular, ongoing income if they are unable to work due to illness or injury.
Total and Permanent Disability (TPD) insurance is an optional element of our SMSF group life insurance plan.
If you hold or are planning to invest in property, vehicles or collectible assets through your SMSF, you need to pay close attention to your insurance arrangements.
The ATO can launch an audit of your SMSF at any time, either at random or because it believes you have made an error in the management of your fund.
Trustee insurance allows you to safeguard your personal assets, providing the funds to defend your case and pay any damages should you be found to be at fault.
