SMSF Property Insurance
Protect your SMSF property, artworks or collectable assets from theft, damage or destruction
If you hold or are planning to invest in property, artworks or collectible assets through your SMSF, you need to pay close attention to your insurance arrangements to ensure the fund remains compliant and you satisfy your obligations as a trustee.
Obviously, your SMSF property, artworks or collectables are as at risk of loss from theft, damage or destruction. As a Trustee you have an obligation to take reasonable measures to protect the assets of the fund from loss in order to preserve value.
If you borrow against your SMSF assets to invest in property you will almost certainly be required to take out SMSF property insurance as a condition of your funding arrangements. However, even if this is not the case, or if your purchase is made direct from your fund’s assets, you will still need adequate property insurance to remain compliant. If your fund owns residential or commercial property which is leased or rented out you are required to have both property and landlord’s insurance, to protect the fund against financial losses and liability claims.
Self-insurance (where you carry the risk of loss with no insurance) is not an option for SMSFs. As Trustee you are required by the ATO to take out insurance on all property and assets of the fund, even where they may be covered by an external policy – for example, if you lease artworks to a gallery, you will need your own insurance despite any arrangements the gallery might have in place. Purchasing or holding an uninsured asset is a breach of your duties as Trustee, so you need to investigate and lock in SMSF property insurance arrangements before you commit to purchase a property, artworks, collectables or vehicles. If you are unable to find an underwriter to insure an existing asset you will be required to sell it.
You will probably need separate insurance policies for each class of asset you hold, but you don’t have to have an individual policy for each asset. For example if your fund owns a mixed collection of artworks, jewellery and antiques you should be able to purchase one blanket policy for the SMSF, with separate policies covering any buildings or vehicles owned by the fund.
Your SMSF insurance policies must cover only assets held by the fund, and may not include any items you own personally or through your business. Similarly, you are not permitted to insure assets of the fund under your personal or business insurance policies. All insurance policies for SMSF property, artworks or collectables must be taken out in the name of your SMSF and all premiums must be paid from the fund’s reserves. You need to be sure that the fund has sufficient cash available to pay your insurance premiums, since your policy will lapse if you fail to keep up with payments, leaving the SMSF’s property uninsured and the Trustees in breach of the ATO requirements.
Residential Property & Landlords Insurance
Residential property held by an SMSF will require insurance to cover the property for damage, fire, theft and usually rent default. The policy is similar to a regular residential property or landlords insurance policy, but needs to be held in the name of the trustee of the SMSF on behalf of the fund. You can get an instant online quote for the residential property by clicking the quote button directly below.
Commercial Realestate & Landlords Insurance
Commercial property insurance differs slightly from residential property insurance and requires specific “business property” insurance cover. You can find out more about Business Property and Asset Insurance and get an instant quote online here.
Art Works and Collectables Insurance
New SMSF regulations require trustees to hold insurance policies to cover art works and collectables in the name of the fund, even if this results in duplication of insurance.
Often art works are leased to a third party who will have insurance covering the art, while an art dealer or brokerage may also have insurance over the art. This may mean there are three separate insurance polices running in duplicate. However this does not exempt the trustee’s requirements to hold insurance in the name of the fund, and may lead to penalties for non-compliance.
If the art or collectables are not insurer appropriately, each trustee will have effectively committed a “strict liability offence” and will be personally liable for any penalty that may be applied. The offence is detailed in regulation 13.188AA (5) of the Superannuation Industry Supervision Regulations.
Under the regulations trustees are expected to insure artworks and collectables in the name of the fund within 7 days of acquisition, with penalties for non-compliance currently around $1700 for each piece of art, and each trustee.
Regulations require trustees to be familiar with all of the rules; so unfortunately claiming you were unaware of the rules will be no excuse.
