Self Managed Super life insurance

Why insure your life and income via your SMSF?

There are a number of reasons why Members obtain Insurance through their SMSF rather than in their individual name; namely:

Cash flow

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.

Tax Minimisation

Insurance premiums are tax deductible to the SMSF providing an effective 15% tax saving and in turn an “effective” reduction in the annual premium. Furthermore, Life and Total & Permanent Disability Insurance is not tax deductible in your personal name, however, it is tax deductible to an SMSF.


If you qualify for Group Plan cover then the premiums can be up to 30% cheaper. This is because group rates are pooled together for all members rather than individually.

Easier application process

As many SMSFs now buy their insurance through a group arrangement, the application requirements are less onerous and cover can be issued almost immediately.

Using the special group plan you can transfer your existing cover if you have insured yourself within the last 5 years without going through a new application.

What about if I borrow to invest via my SMSF?

Trustees should consider the need for insurance to protect the fund’s assets and ability to service any debt when implementing a limited recourse borrowing strategy.

If a member of a fund that has borrowed dies or becomes permanently incapacitated, the surviving trustees may be forced to sell the asset in order to pay out any lump sum benefit required, or because the fund does not have sufficient cash flow to continue to repay the loan. This could become an even bigger issue if the loan repayments are partially of fully dependent on the member’s contributions from employment.

Best interest test for the member

From July 1, 2013, all advisers of SMSF’s are required to provide advice in the best interest of their clients. This means advisers need to consider the best interests of their clients when assessing the client’s insurance and superannuation requirements.

You need access to a suitable administrator who can assist you in providing access to advice and implementing the correct insurance cover to avoid any compliance breaches.

What are the main mistakes members make when insuring through their SMSF?

  • Not having up to date and correct beneficiaries in place.
  • Not having the correct bank account pay for the premiums.
  • Not having the ability to pay a pension from the SMSF.
  • Paying retail insurance rates.
  • Having a wrap platform be the owner of the policy that sits inside the SMSF