What are the financial advantages to buying Life Insurance through an 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 that you just need to be aware of, 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 as there is the additional step of having the fund distribute proceeds after receiving from the insurer.