SMSF Insurance: A Guide

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When setting up a Self-Managed Superannuation Fund (SMSF), many are advised to consider how best to handle their insurance needs. While some opt to retain their previous retail or industry super fund accounts primarily for insurance purposes, others explore the potential of integrating insurance directly into their SMSF. Let’s dive into why and how you can efficiently manage insurance through your SMSF, making it work to your advantage.

Tailoring Insurance inside SMSF

Unlike traditional super funds, SMSFs offer a unique benefit when it comes to insurance, allowing the fund to tailor insurance policies specifically to the needs of its members. This is particularly useful as it means the cover can evolve as members’ personal circumstances change. However, it’s important to note that SMSFs are still bound by the same rules as other super funds — they can only insure members against certain conditions that are aligned with the release of super benefits, such as death, temporary or permanent disability.

Tax Benefits of SMSF-Paid Premiums

One of the most compelling reasons to consider managing your insurance through an SMSF is the potential for tax efficiency. Premiums for personal life insurance are generally not tax-deductible when paid by an individual. However, if these premiums are paid by an SMSF, they become tax-deductible to the fund. This can result in significant tax savings, especially over the long term.

Cost Considerations

It’s important to note that setting up insurance within an SMSF might involve similar costs and effort to holding a personal policy. Unlike in a large super fund, where the cost of insurance is reduced due to bulk deals secured by the trustee, SMSF members must negotiate their own terms. Yet, the ability to customise policies provides a tailored approach, ensuring that members are neither underinsured nor overinsured.

Cash Flow Benefits

Consider the cash flow benefits: an SMSF can pay insurance premiums directly from contributions coming into the fund. For example, if Tom, an SMSF member, makes regular contributions to his fund, these can be used to cover his life insurance premiums without needing to dip into his personal bank account. This setup not only simplifies budget management but ensures that his insurance cover is maintained without additional financial strain.

Moreover, should the unfortunate happen and Tom passes away, the life insurance pay-out to his fund can provide a financial safety net. If Tom’s spouse is the beneficiary, as a dependent, she would receive the benefits tax-free. This dependency status significantly eases the financial impact during such a difficult time, showcasing another layer of strategic financial planning within an SMSF.

Allocation of Premium Costs

In an SMSF, the transparency and control over financial management extend to how insurance premiums are handled. Premiums are allocated and deducted from each member’s account specifically. This method ensures that each member pays exactly for their cover, avoiding any cross-subsidisation among members.

Ownership and Compliance

The SMSF must own the policy for the structure to work correctly. This ownership determines that any claim proceeds first go to the fund, not directly to the member or their family. It’s crucial to set this up correctly as it influences how benefits are taxed upon distribution. For instance, if the beneficiary is not a dependent, such as adult children, they may be taxed at a higher rate on received benefits.

Auditors pay close attention to these details, ensuring that the SMSF complies with superannuation laws. For example, if the fund owns the policy but the documentation suggests otherwise, it could lead to significant compliance issues.


Integrating insurance into your SMSF offers both flexibility and tax advantages but requires careful consideration and management to ensure compliance and optimal structuring. By understanding these aspects and planning effectively, you can maximise the benefits of your SMSF and provide robust financial protection for yourself and your beneficiaries. If you or someone you know is exploring insurance options within your SMSF that best suit your personal circumstances, we are here to help. Please feel free to reach out.

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