www.esuperfund.com.au

Questions & Answers - Insurance


chat pdf print
+ What Insurance Options are available in a SMSF?

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

  •  
     
    Life Insurance
  •  
     
    Total & Permanent Disability Insurance
  •  
     
    Income Protection Insurance

Importantly when you establish a SMSF with ESUPERFUND, Insurance through your SMSF is completely optional. You are under no obligation to have Insurance in your SMSF if you choose not to. Each Insurance Type is discussed in detail here.

+ Does my SMSF have to use a specific Insurer as a client of ESUPERFUND?

When you become a client of ESUPERFUND, your SMSF is permitted to arrange Insurance for its Members. To simplify the Insurance Process ESUPERFUND has established a direct arrangement with AIA Insurance (a product administered by Australian Group Insurances Pty Ltd "AGI") allowing clients to easily apply for Insurance conveniently online.

The AIA Group comprises the largest independent publicly listed pan-Asian life insurance group in the world, spanning 15 markets in Asia Pacific. AIA has been in operation for more than 90 years and has total assets exceeding US$100 billion. Through an extensive network of more than 260,000 agents and over 21,000 employees across Asia Pacific, AIA serves the holders of over 23 million individual policies and over 10 million participating members of group policies. The Group has operations in Hong Kong, Thailand, Singapore, China, Malaysia, Korea, the Philippines, Australia, Indonesia, Taiwan, Vietnam, New Zealand, Macau, Brunei and India. More can be found here.

The ESUPERFUND AIA Insurance Product is provided to simplify the Insurance Application Process. Whilst it is strongly preferred that the AIA Insurance Product is used to simplify the annual compliance process, it is not compulsory and clients can implement Insurance with any Insurer they choose if preferred.

+ What is 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.

+ What happens on Death if I have Life Insurance?

On Death the Life Insurance Payout is paid to the SMSF Tax Free. The Benefit is in turn paid to your Beneficiaries in accordance with your Binding Death Nomination if one is in place. If there is no Binding Death Nomination in place the Life Insurance Payout is paid out at the discretion of the remaining Trustees.

+ What is Total & Permanent Disability (TPD) Insurance?

Total and Permanent Disability Insurance provides a lump sum if the insured person suffers Total & Permanent Disablement. Typically this means that you have been continuously incapacitated for a period of time and the incapacity is such that it is unlikely you will ever resume your usual occupation again. Total and Permanent Disability Insurance can be Linked with your Life Insurance Policy or can be a Standalone Policy.

+ What happens when I receive a Total & Permanent Disability payout?

If you claim on the Total and Permanent Disability Insurance policy the Insurance payout is paid to the SMSF Tax Free. The Benefit can in turn be paid to the Member as a Lump Sum or Pension under the Permanent Incapacity Access Provisions.

+ What is Income Protection Insurance?

Your SMSF is permitted to arrange Income Protection Insurance for its Members. Income Protection Insurance can provide you with an income in the event that an illness or injury prevents you from 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.

+ What happens when I receive an Income Protection payout?

If you claim on Income Protection Insurance, the Insurance Payout is paid to the SMSF. The SMSF pays tax at 15% on the payout. The Benefit can in turn be paid to the Member as a Pension only under the Temporary Incapacity Access Provisions. The payout is in turn taxed at the Members marginal tax rate on receipt less a 15% rebate. Practically 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. Again the main advantage therefore in having your Income Protection Policy owned by your SMSF is that the SMSF will pay the Premiums and not you, providing cash flow relief in the payment of your daily living expenses.

+ Does the Insurance Policy have to be in the name my SMSF?

Yes. In order for the SMSF to pay for Insurance Premiums, the relevant Insurance Policy Owner must be in the SMSF name with a specified Member named as the Insured person. By arranging our clients Insurance using the AIA Online Insurance Platform, you can be assured that the Insurance Policy will be established correctly. This ensures ATO compliance issues and associated penalties are eliminated and that client Insurance Policies are compliant with Super Laws.

+ How do I pay for my Insurance Premiums?

Once the Insurance Policy has been established the premiums will be paid from the Transaction Bank Account. This allows ESUPERFUND to track the premiums being made and ensure that they claimed in your SMSF Annual Tax Return.

+ Are the Insurance Premiums Tax Deductible in my SMSF?

Yes. The premium paid on the Insurance Policy is fully tax deductible to the SMSF providing an effective 15% tax saving and in turn an "effective" reduction in the annual premium. Accordingly if your annual premium is say $500 per annum, your SMSF will receive a tax deduction on this payment. Based on the SMSF Tax Rate this will result is a tax saving of $75 annually. It should be noted that Life and Disability Insurance is not tax deductible in your personal name. Conversely Income Protection Insurance is tax deductible in your personal name. This may provide you with a larger tax deduction in the event that your marginal tax rate is greater than the SMSF tax rate of 15%. The main advantage therefore in having your Income Protection Policy owned by your SMSF is that the SMSF will pay the Premiums and not you, providing cash flow relief in the payment of your daily living expenses.

+ Can my SMSF have Trauma Insurance?

No. Trauma Insurance covers things like heart attack, stroke etc, and is paid as a lump sum payout. It is not recommended that Trauma Insurance is arranged through a SMSF. This is because in the event of a payout there are no provisions in the Super Laws to allow a Member to access the Insurance Payout unless a Condition of release is met (such as Retirement). This means that the Insurance payout will be trapped in the SMSF which will be disastrous as the monies will be required given the trauma suffered and the fact the Member is unlikely to be able to work. Trauma Insurance should only be taken out in a Member's personal name to ensure you can access it when you need it.

+ Where can I obtain an Insurance Premium Quote?

Insurance through your SMSF can be a relatively cheap form of insurance. The annual premiums payable depend on the amount of cover required, your age, health and lifestyle. For an indication of the likely Insurance Premiums for the Insurance selected, visit the Insurance Quote section of our website here.

+ How are the Insurance Premiums paid?

Once the Insurance Policy has been setup the premiums will be paid from the Transaction Bank Account. This allows ESUPERFUND to track the premiums being made and ensure that they claimed in your SMSF Annual Tax Return.

+ How hard is the Insurance Application Process?

The main reason for choosing the AIA Insurance Product is that it simplifies the Insurance underwriting process using by using a Straight Through Online Insurance Application Platform. You simply need to visit the AIA Online Insurance Application here, answer 10 or so simple questions, and the system will instantly provide you with an Insurance Quote. In most cases if you accept the Insurance Quote provided you will be instantly covered. No medicals will be required. This is unprecedented in the marketplace and makes the Insurance Application process easy. In some cases depending on your personal circumstances you may need to provide more information or undertake a medical examination. The Online Insurance Application will automatically advise you if this is the case and a representative of AIA will contact you to finalise the Insurance Application process. For more on the Insurance Application Process, click here.

+ Where can I find out more about the Insurance Application Process?

The Insurance Application Process is detailed in a Step by Step Guide here.

+ How can I obtain a recommended level of cover for my personal circumstances?

Sometimes it is difficult to know what level of Insurance Cover you actually need. The AIA Online Insurance Platform provided to ESUPERFUND clients provides you with a recommended level of Insurance cover based on your unique circumstances. This provides you with valuable information when making the important decision of "How much will be enough to protect my family" if you get sick or die. Importantly you are free to accept or reject the recommendation. Visit the AIA Online Insurance Platform here.

+ Do I have to have a Medical Examination?

Depending on the amount of insurance cover required, your age and current health, you may be required to undertake a medical examination when you apply for Insurance through your SMSF. The major benefit in the Insurance Offering provided by AIA however is that in many cases there is absolutely no need for medicals simplifying the Insurance Process. In fact in many cases you can have your Insurance Coverage implemented in under 30 minutes with no complicated forms and medicals.

+ Why insure within your SMSF?

There are two main reasons why Members obtain Insurance through their SMSF rather than in their Individual Name namely:

  •  
     
    The insurance premiums are paid for by the SMSF, rather than the Member having to pay for them out of their own financial resources. This alleviates personal cash flow concerns about how to fund the Insurance Premiums.
  •  
     
    The insurance premiums are tax deductible to the SMSF providing an effective 15% tax saving and in turn an "effective" reduction in the annual premium. Note that Life Insurance and Total & Permanent Disability Insurance is not tax deductible in your personal name.
+ Can using the AIA Insurance Product avoid Audit Issues?

Yes. Based on the results of our annual audit compliance process, ESUPERFUND has identified that in the majority of cases, clients have arranged Insurance in their personal names and are making the Insurance Premiums from their SMSF Bank Account. This is illegal. In order for the SMSF to pay for Insurance Premiums, the Insurance Policy must be in the SMSF name with a specified Member named as the Insured person. By arranging our clients Insurance using the AIA Online Insurance Platform, you can be assured that the Insurance Policy will be established correctly. This ensures ATO compliance issues and associated penalties are eliminated and that client Insurance Policies are compliant with Super Laws.

+ Can I transfer an existing Insurance Policy from my Individual Name to my SMSF?

No. Where you already have an Insurance Policy in your personal name you must ensure that the SMSF does not pay for the Insurance Premiums. Most clients attempt to resolve this issue by transferring the Individual Policy to their SMSF. This is illegal and you must ensure this is not done. If you have an Individual Insurance Policy and want this transferred to a SMSF you must cancel the existing policy and arrange for a new policy in the name of the SMSF to be implemented.

+ Can I transfer an existing Insurance Policy from my current Superfund to my SMSF?

No. Where you already have an Insurance Policy in your current Superfund it is generally not possible to transfer the policy to your SMSF. This means that the old policy will need to be cancelled and a new policy established in your SMSF.

+ How does ESUPERFUND access information about my SMSF Insurance policies?

Data for all SMSF Insurance Policies established directly through ESUPERFUND are electronically accessible by ESUPERFUND alleviating you of the responsibility of maintaining these records at financial year end.

+ Does ESUPERFUND provide Insurance advice?

No. The ESUPERFUND Insurance Service is provided on No Advice Basis. Clients will need to determine if the AIA Insurance Product is appropriate for their financial situation based on their particular needs.