Why SMSF Insurance Can Be a Gamechanger for Your Super
When setting up your self-managed super fund (SMSF) for the first time, consider arranging SMSF insurance directly through your super. It offers plenty of advantages, including better cash flow, tailored coverage for the members' needs, and tax-deductible claims for premiums.
As part of your SMSF's investment strategy, you can hold insurance within the fund and protect the fund's assets, providing a safety net against unexpected events. However, don’t cancel your existing insurance policies just yet. Seek financial advice to ensure you’re choosing the most cost-effective option and maximising the available benefits. DKM Accounting can guide you through your SMSF and insurance options, answering your questions so you can make informed decisions about your fund and stay on track towards your retirement goals.
Reasons to Keep Insurance Within Your SMSF
Following the Australian Tax Office (ATO) guidelines, all SMSFs are required to prepare a documented investment strategy during the setup process, including any insurance coverage arranged for its members. Since it’s already part of the foundation, it makes sense to hold insurance within your SMSF. This approach ensures your cover is built into your overall strategy from the start, making it easier to manage and maintain over the long term.
Opting for insurance within your SMSF also offers several advantages. You can customise the type and level of cover to meet each member's exact needs and adjust the coverage over time as circumstances change.
If you pay for total and permanent disability (TPD) insurance, income protection premiums, and life insurance for SMSF, the fund can claim these costs as tax-deductible expenses. This setup can make the cover more cost-effective for members, because it avoids drawing from their cash flow or savings. In the case of life and TPD insurance, it also provides members with tax benefits that are not available with a personal policy.
In this arrangement, the SMSF trustee acts as the policy owner and is responsible for the premium payments. The SMSF member is the insured person.
Holding insurance within your SMSF improves cash flow by using super contributions to pay premiums instead of members’ savings. Even if only one member contributes, all premiums can be covered, with costs allocated to each member’s account in the fund’s records.
Types of SMSF Insurance You Can Arrange
Like all super funds, SMSFs can only provide benefits under certain conditions, so they can only hold insurance that aligns with these rules. This means they may only offer insurance that meets one of the following superannuation conditions of release:
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Death (smsf life insurance) – includes terminal illness benefits
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Permanent incapacity (TPD) – when a member can no longer work in any role suited to their education, training, or experience
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Temporary incapacity (income protection) – when a member is unable to work for a limited period due to illness or injury
You can customise your SMSF life insurance policy to suit each member’s needs and adjust factors like waiting periods and sums insured. This can make SMSF insurance more flexible than group cover from retail or industry super funds, though group insurance may sometimes be more cost-effective.
Your fund can also hold SMSF property, audit protection, and trustee insurance. This helps safeguard fund assets, protect against compliance-related legal liability, and preserve the value of property in your portfolio.
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Staying Compliant with SMSF and Insurance
From setting up your SMSF to arranging insurance within your fund, SMSF accountants and advisors can help develop a foolproof investment and exit strategy to ensure your fund remains compliant and financially protected. At DKM Accounting, we help trustees with:
SMSF Setup
We ensure your SMSF is fully set up and help identify assets that align with your investment goals and fall within your borrowing capacity.
Insurance Advice
We assess your fund’s needs and recommend insurance options that align with your investment strategy and member profiles.
Premium & Tax Management
We manage all payments made on behalf of your SMSF, including insurance premiums, ensuring they are correctly allocated to members and structured to maximise potential benefits.
Investment & Exit Strategy
We can help you prepare, review, and update your fund’s investment strategy to ensure compliance with super laws. This includes an exit plan to wind up your SMSF, especially if unexpected events arise.
locations
Find DKM Accounting near you. Our locations make expert financial support easily accessible, whether in person or online.
Bella Vista, nsw 2153
Location
408, 29 Lexington Drive
Bella Vista NSW 2153
Hours
Monday: 9:30 am - 6:30 pm
Tuesday: 9:30 am - 6:30 pm
Wednesday: 9:30 am - 6:30 pm
Thursday: 9:30 am - 6:30 pm
Friday: 9:30 am - 6:30 pm
Saturday: Closed
Sunday: Closed
Contact
Deakin, ACT 2600
Location
2/8 Phipps Cl,
Deakin ACT 2600
Hours
Monday: 9:00 am - 5:30 pm
Tuesday: 9:00 am - 5:30 pm
Wednesday: 9:00 am - 5:30 pm
Thursday: 9:00 am - 5:30 pm
Friday: 9:00 am - 5:30 pm
Saturday: Closed
Sunday: Closed
Contact
Speak with an SMSF Accountant
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Frequently Asked Questions on SMSF Insurance
Is income protection insurance tax deductible in SMSF?
Yes. According to the ATO, death, total and permanent disability, terminal illness, and income protection premiums have specific deduction provisions that apply to SMSFs. Income protection premiums are designed to replace a member’s assessable income in the event that they cannot work due to illness or injury and are tax-deductible. However, the cover must meet the ATO’s rules for insurance in super, and payouts should align with a condition of release (in this case, temporary incapacity).
What are the requirements for SMSF and insurance?
SMSF insurance requirements must abide by ATO guidelines. Keep your fund compliant and your members protected by making sure your insurance cover includes the following:
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Properly documented investment strategy – trustees must decide whether to hold insurance cover for each member
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Allowed cover types – only take out total and permanent disability (TPD), temporary incapacity (income protection), or death (life insurance) for SMSF
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Correct policy ownership – the SMSF trustee should be listed as the policy owner, and the member should be the insured person
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Premium payments – all premiums are paid from SMSF assets, with payments correctly allocated to the member’s account (even if paid from pooled contributions)
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Policy compliance – the insurance must not provide benefits that go beyond what’s allowed in super law, and trustees need to ensure the policy terms match the conditions of release
What happens to the SMSF after death?
According to the ATO, when an SMSF member dies, trustees are responsible for correctly identifying who will receive the member’s superannuation or super death benefit.
The SMSF typically pays the member’s remaining super to one of the following:
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A dependant
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A nominated beneficiary of the deceased
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The deceased’s legal personal representative to distribute it according to the instructions in their will
Trustees must also ensure that the required tax on super benefits is deducted from the benefit and that it meets their PAYG obligations. The super death benefit should be paid off as soon as possible after the member’s death.