Your industry fund insurance stops when your account closes, but it doesn’t have to mean losing your protection. The SMSF Master Insurance Plan gives you individually underwritten cover at wholesale rates, with the Individual Transfer Option to preserve your existing cover.
When you tell people you’re setting up an SMSF, you’ll get plenty of advice on tax structures, investment strategies, and ATO compliance. What you probably won’t get is anyone reminding you that your insurance is about to disappear.
Most industry super funds give you default cover automatically usually including some death cover, TPD, and sometimes basic income protection. When you close that account to roll into your SMSF, that cover stops. Not later, not gradually, but at the point your account closes. And it doesn’t come with you.
So you need a plan. The good news is the plan is pretty straightforward. The not-so-good news is that if you don’t actually action it, you’ll be uninsured by the time you notice.
What you’ve actually got with industry fund cover
Industry fund default cover is set up on standardised assumptions about age and occupation. It’s measured in units rather than dollars, with each unit worth a set amount of cover that often shrinks as you age. Income protection inside industry funds is usually capped at modest amounts with short benefit periods — two-year benefit periods are common.
Because it’s offered without medical questions, default cover comes with a trade-off: pre-existing conditions are usually excluded for a defined period, and the cover level isn’t matched to your actual situation. It’s a one-size approach.
Individually underwritten cover, which is what you get through SMSF Insurance under the SMSF Master Insurance Plan, works the opposite way. You apply, AIA Australia assesses your specific situation, and the terms are tailored to you. More involved upfront, but it produces cover that actually fits, without those pre-existing condition exclusions hanging around.
The cover gap most people don’t realise they have
Industry fund default cover often comes to between $200,000 and $400,000 of death cover, and it goes down as you age. For someone in their 30s or 40s with a mortgage, a partner, and kids, that’s nowhere near enough. The default cover was never designed to be your actual answer — it’s just a starting point.
Moving to an SMSF gives you a reason to actually sit down and work out what you need. AIA and Deloitte have a free Insurance Needs Calculator that factors in your debts, dependants, and ongoing obligations to give you a sense of appropriate cover levels. As trustees of your SMSF, you also have a formal obligation under SIS Regulation 4.09 to consider insurance for your members — so this conversation is going to happen one way or another.
Why our group cover usually beats the default
Default industry fund cover is priced on a unit basis where the cost per unit climbs sharply as you age — often faster than the actual risk warrants, because the unit structure spreads costs across age groups. By the time you’re in your late 50s, you can be paying significantly more than equivalent retail cover would cost.
Through SMSF Insurance, you get individually underwritten cover at group rates. That’s a different proposition. The pricing is wholesale, but the cover is tailored to you. For most members in standard underwriting categories, the combination produces lower premiums than they were paying for default industry fund cover — sometimes substantially lower.
Upgraded you industry fund cover? Individual Transfer Option still applies
If you’ve ever increased your cover beyond the default level through your industry fund — adding extra death cover, applying for higher TPD, or putting in income protection — you would have gone through some underwriting at that point. That underwriting has value, and it’s portable. You can bring it across to the SMSF Master Insurance Plan under the Individual Transfer Option:
- Death cover and Death + TPD cover transfers under matched terms up to $2 million per member
- Income protection transfers under matched terms up to $20,000 per month
To qualify, you’ll need to be aged under 60, gainfully employed and capable of at least 30 hours of work per week, and able to provide a statement from your existing fund dated within the last 30 days. Your existing cover also needs to have been accepted on terms no worse than +100% extra mortality and no more than two exclusions — which is the case for most standard cover.
The decision you need to make
Under SMSF rules, trustees have to formally consider insurance for fund members. You don’t have to obtain insurance, but you do have to think about it, document the decision, and review it regularly. The ATO will expect to see evidence that you’ve done this when your fund is audited.
In practice, this means setting up an SMSF triggers a real insurance conversation — one your previous super fund was making for you automatically.
Trustees should:
- Work out what each member actually needs, given age, family, debts, and obligations
- Compare what’s available (group vs retail, inside super vs outside)
- Decide on cover types and levels for each member
- Document the decision in your investment strategy
- Review it regularly, particularly when member circumstances change
Get the sequence right
Whatever you decide, the timing is critical. The order that keeps you covered the whole way through is:
- Apply for new cover first — Before initiating any rollover — so the new policy is in place before the old one ends.
- Wait for confirmation — Cover commences on the later of AIA’s acceptance and cancellation of the existing policy, so you need both lined up.
- Then initiate the rollover — Knowing the default industry fund cover will stop when the account closes.
- Close the old account — With continuous protection running throughout the process.
| Don’t lose your cover when you switch
Moving from an industry fund to an SMSF doesn’t have to mean losing what you’ve already got. Get a quote through SMSF Insurance and see how your existing cover can come across — usually at better rates than you’re paying now. |
Quotes for SMSF Insurance are instant, and you can buy SMSF Life cover securely online.
