Purchasing life insurance – in or out of your SMSF?
Purchasing your insurance through a self-managed super fund (SMSF) may have a number of advantages over having it in your personal name. These include tax deductions on life insurance and total and permanent disability (TPD) insurance as well as improved cash flow due to the fact that your insurance premiums are being paid by your super contributions.
Not all types of insurance are suited to SMSFs. Trauma insurance, also known as critical illness cover, is available through a SMSF, but there are some major limitations.
Trauma insurance covers situations in which you could become permanently incapacitated such as a serious accident or traumatic event like a heart attack. In order to access the claim through your SMSF policy, you will need to satisfy several conditions of release, which could include:
- Reaching age 65
- Being permanently incapacitated (as deemed by the SMSF trustee)
- Temporary incapacity
- Terminal illness
- Severe financial hardship
- Compassionate grounds
People who experience a trauma event or critical illness will not necessarily satisfy these conditions of release. This means that you could be unable to access the money that was locked away in your super for a number of years. It is important to think carefully about whether you want trauma insurance inside or outside super. With trauma insurance under your personal name, it’s more likely you will be able to access the funds quickly when a relevant situation arises.
Speak to one of our advisors about getting personal insurance through a SMSF and to make sure you have adequate life insurance and income protection cover to meet your needs.