Linked Income Protection Insurance:

Linked SMSF Insurance: Life and TPD Inside, Income Protection Outside for Easier Benefit Access

At SMSFInsurance.com.au, we understand that managing insurance within an SMSF can be complex, especially when it comes to ensuring benefits are easily accessible when you need them most. That’s why we offer linked insurance policies that allow you to hold life insurance and total and permanent disability (TPD) insurance within the SMSF, while keeping the income protection component external for simplicity and quicker access to benefits in the event of a claim.

Why Hold Income Protection Insurance Outside the SMSF?

Income protection insurance is designed to provide a steady income stream if you are unable to work due to illness or injury. However, holding this policy within an SMSF can create significant hurdles when it comes to accessing benefits.

If income protection is held within the SMSF:

• Any claim benefits are paid to the SMSF, not directly to the individual.
• You can only access the funds if a superannuation condition of release is met. For temporary disability, which is typically what income protection covers, these conditions may not be satisfied.

According to Australian superannuation law, conditions of release are strict. They are often limited to cases like permanent disability, terminal illness, or severe financial hardship. For a temporary injury or illness that income protection is meant to cover, the condition of release may not apply, meaning you won’t be able to access the claim benefits. As a result, these funds might remain trapped in the SMSF, leaving you unable to use them for urgent daily living expenses, such as mortgage payments, utilities, or medical bills.

This is why we recommend holding income protection insurance outside the SMSF. By doing so, the benefits from an income protection claim are paid directly to you, ensuring you can access the funds immediately when you need them most, without waiting for trustee approval or superannuation release conditions.

Key Facts from Sections 4 & 5 of the Product Disclosure Document (PDS)

Here are the key income protection facts from sections 4 and 5 of the SMSF Insurance Product Disclosure Document(PDS):

1. Income Replacement: Income protection policies generally cover up to 75% of your pre-disability income. This benefit is intended to replace your salary if you are unable to work due to illness or injury.
2. Waiting and Benefit Periods: You can choose a waiting period (the time between when you are unable to work and when benefits start) and a benefit period (the length of time you receive payments). These options can impact the policy’s premiums and overall suitability for your needs.
3. Access to Benefits: When income protection is held outside super, the claim benefits are paid directly to the insured, ensuring quicker access to funds. If held inside super, funds are subject to superannuation release conditions, which could delay your access to necessary funds during a temporary illness or injury.
4. Tax Deductibility: Premiums for income protection insurance can be tax-deductible, both inside and outside of super. However, the complexity and potential delays in accessing benefits make holding income protection outside the SMSF a more practical solution.

How SMSFInsurance.com.au Offers a Simplified Approach

To make the process easier and more efficient, SMSFInsurance.com.au provides linked insurance policies, where:

• Life and TPD insurance are held within the SMSF, allowing for tax-deductible premiums and compliance with SMSF investment strategies.
• Income protection insurance is held outside the SMSF, ensuring immediate access to benefits when you need them, without being tied to superannuation conditions of release.

This linked approach ensures your SMSF maintains its tax advantages, while still providing you with the quick access to funds you need during periods of illness or injury.

Conclusion: The Best of Both Worlds

By separating income protection from the SMSF while keeping life and TPD policies within the fund, SMSFInsurance.com.au offers the best of both worlds—allowing you to maintain tax-efficient insurance coverage within your SMSF while ensuring fast, direct access to income protection benefits.