Insurance Options

Types of Insurance Cover

Your SMSF is permitted to arrange the following Insurance Policies for its Members:

1. Life Insurance
2. Total & Permanent Disability Insurance (TPD)
3. Income Protection Insurance

Type of cover What it pays
Life Insurance Life Insurance provides a lump sum payment to your family on your death or diagnosis of a terminal illness. Life Insurance is available as a policy on its own, or in a policy that includes Linked Total and Permanent Disability Insurance.
Total & Permanent Disability (TPD) Insurance Permanent Disability Insurance provides a lump sum if the insured person suffers Total & Permanent Disablement. Total and Permanent Disability Insurance can be Linked with your Life Insurance Policy or it can be a Standalone Policy.
Income Protection Insurance Income Protection Insurance can provide you with an income in the event that an illness or injury prevents you from engaging in your employment. You can generally insure up to 75% or less of your normal income, payable up to the age of 65, thereby helping you meet your regular financial commitments.

Paying for premiums

Insurance premiums (for policies such as life, TPD and income protection insurance) paid by your SMSF are tax deductible. In order for the SMSF to pay for Insurance Premiums, the Insurance Policy Owner must be in the name of SMSF with a specified Member named as the Insured person.

If you choose to use the SMSF Master Insurance Plan provided by AIA through ESUPERFUND, once your insurance application has been approved, the premiums will be paid from the Transaction Bank Account. This allows ESUPERFUND to track the premiums being made and ensure that they are claimed in your SMSF Annual Tax Return. The premiums paid are fully tax deductible to the SMSF.

Note that Life Insurance and Total & Permanent Disability Insurance premiums are not tax deductible in your personal name, but they are tax deductible if held in your SMSF. Income Protection Insurance is tax deductible in both your own name and in your SMSF. The SMSF will pay the Premiums and not you personally.

Tax on your insurance claim

In the unfortunate event that you have to claim on your insurance benefit, the table below explains how each will be taxed and paid.

Cover type How it is taxed How and to whom the claim will be paid
Death cover Tax free The death benefit is paid to your Beneficiaries in accordance with your Death Benefit Agreement if one is in place. If there is no Death Benefit Agreement in place the Life Insurance claim is paid out at the discretion of the remaining Trustees.
TPD cover Tax free The TPD benefit can be paid to the Member as a Lump Sum or Pension under the Permanent Incapacity Access Provisions.
Income Protection cover Taxed at 15%
The Income Protection benefit can be paid to the Member only as a Pension under the Temporary Incapacity Access Provisions. The payout is taxed at the Member’s marginal tax rate on receipt less a 15% rebate. This means that the tax on the payout will be the same whether the Income Protection Policy is owned by you or the SMSF. There is no difference.
By having your Income Protection Policy owned by your SMSF, the SMSF will pay the Premiums and not you personally.

For more on the implications of paying Super Benefits click here

Set up your SMSF with ESUPERFUND Today!