An SMSF can offer you more control, but it also comes with a lot more responsibility. As an SMSF trustee, you’re taking on some important obligations, including the decision whether you (or other members in your SMSF) need life insurance.
Have you thought about how your dependents would cope financially if you became seriously ill or injured, or pass away? How will they pay household bills or manage debt?
Life insurance – what are your SMSF member’s needs?
In some cases there may be little or no need for insurance. For example, if members have sufficient assets and savings which are readily available (i.e. liquid assets), or if a member has retired, has little or no debt and sufficient retirement savings.
On the other hand members may have a real need to protect their financial plans and retirement outcomes if they are unable to work. Considering that 1 in 3 males and 1 in 4 females will be diagnosed with cancer by the age of 751, life insurance is important to provide financial protection for you or other members in your SMSF from the unexpected illness or injury.
In addition to protecting the financial independence and lifestyle of your members, life insurance in your SMSF may also provide cash flow, tax advantages and liquidity:
1. Cash flow and tax advantages
Insurance in your SMSF can be paid using pre-tax dollars, as opposed to your post-tax dollars, which are taxed at your marginal tax rate (up to 47%). Paying for insurance premiums through superannuation may also provide cash flow benefits – meaning you don’t have to dip into your own pocket.
If you have illiquid assets in your SMSF, for example, property, insurance in your SMSF can help to avoid the SMSF having to sell assets unexpectedly in the event of a member passing away, or becoming disabled. Regulations require SMSFs to release benefits upon the member’s death. Life insurance in your SMSF can help fund this member benefit without having to sell any illiquid assets.
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1. Cancer in Australia an overview 2012, Australian Institute of Health and Welfare Canberra