Types of insurance in SMSFs

You can take out a range of insurances within SMSFs including:

  • Life insurance
    Pays a lump sum when you die. In many policies, the payment is brought forward if you become terminally ill and paid before you die. 

  • Total and permanent disability insurance (TPD)
    Pays a lump sum in the event you suffer an illness or injury that leaves you incapable of working for the rest of your life.  

  • Income protection insurance
    Provides a regular income (generally up to 75% of your previous work or business income) if you suffer an illness or injury that leaves you temporarily unable to work. Benefits are payable until you’re able to return to your normal work or until you reach any maximum age or payment period in the insurance policy. 

SMSFs can no longer take out trauma insurance policies. 

It is important to make sure the definitions of terms such as permanent disability and temporary disability in your insurance policy match up with the superannuation rules. In fact, funds can no longer take out new policies where the definitions don’t line up. 

Benefits of insurance through your SMSF

Many people have their life and disability insurance through their SMSF because: 

  • the premiums are tax deductible to the fund when the policy is in super 
  • you may be eligible to claim a personal tax deduction for contributions to super which are used to fund the premiums 
  • if the policy is in your SMSF, any payout will go to the SMSF rather than directly to you or your estate or beneficiaries, allowing some additional tax planning 
  • you no longer have to come up with the money yourself to pay the insurance premiums as these are now being paid for by your SMSF