Already a subscriber?Many people setting up a self-managed superannuation fund for the first time choose to keep their old fund account open to continue their insurance. But it’s also possible to arrangeLike all super funds, SMSFs can only pay benefits under specific conditions and therefore can only take out insurance for situations that match those conditions.
There are several reasons people might arrange insurance via their super rather than taking out a policy personally. One reason – relevant for people in a retail or industry fund – is that it’s often easy to get and inexpensive. This is one of the benefits of being part of a large group where the trustee has arranged bulk terms and conditions for all the members.
Another reason people arrange insurance through their super fund is that the SMSF is allowed to claim a tax deduction for the premiums. In contrast, that’s not always possible for personal insurance. For example, the premiums for a personal life insurance policy are not tax-deductible to an individual.It can also be good for cash flow – the SMSF can pay premiums from the super contributions coming into the fund rather than the member needing to find additional cash each month.
For example, Chris is 60 and has life insurance in his super fund. Death benefits are tax-free to some beneficiaries but not everyone.What if Chris isn’t married and his super goes to his adult, financially independent, children? They will pay tax at quite high rates on at least some of his super – even up to 30 per cent on some parts.This will flow through to effectively paying tax on at least some of the insurance payout.
Source: Insurance Report (insurancereport.net)