As a trustee of your SMSF, you now have to review your investment strategy following recent amendments to SMSF requirements in the Superannuation Industry (Supervision) Regulations.
We previously reported on this change back when it was announced in August 2012.
Trustees are now required to “consider” whether or not their fund should carry insurance cover for members. The cover referred to includes life, total and permanent disability insurance and income protection.
The underlying reason why this regulation change has been introduced is due to the significant under insurance of members of SMSFs compared to members of industry and retail funds. Only an estimated 3% of people are considered to have adequate insurance/
Watch this short video for an explanation of these changes:
There may be a number of reasons why members of an SMSF don’t hold an insurance policy in their fund including:
- They maintain a small balance in a corporate or industry super fund to take advantage discounted premiums that may be available
- Insurance may be held by the individuals personally
- The demographic of SMSF members is also older, meaning in many cases premiums for insurances may be cost prohibitive
Regardless of the personal situation of the members of the fund, you as the trustee are still required to make a decision on whether your SMSF needs to hold insurance policies for the members (i.e for yourselves), and just as importantly document that decision as part of your SMSF investment strategy.
Yes – I know – more obligations and more compliance….
Our role as SMSF administrators and advisors is to assist you meet these compliance obligations in the easiest way possible. To enable you to meet this new requirement, we have determined a couple of options:
- Document your decision only
- Seek advice regarding your insurances
Documenting your SMSF investment strategy & insurances:
To enable us to prepare an updated investment strategy for your SMSF, we are going to need some information from you. To make things as simple as we can, we have developed a very short questionnaire that you need to complete before we can finalise your 2013 SMSF accounts and tax return.
You can download a copy of the questionnaire here:
Alternatively, you can complete the same form online and submit it through to us:
You will notice on both versions of the form, there is a big ugly disclaimer stating that completing the questionnaire and the document we prepare on your behalf should not be considered financial advice. This is very important as we are purely assisting you as the trustee to document decisions that you have already made – we are not trying to provide advice or influence your decision in any way.
We do however recommend you seriously consider speaking to one of our specialist financial advisors – so please tick the box confirming that you want someone to get in touch regarding your insurance needs – which leads us to option 2:
Seeking specialist advice regarding your insurances:
This is by far the preferred option for all SMSF trustees – as much as we love the world of SMSFs here at Superfund Partners, we do acknowledge that there is more to life – and hence more to your insurance requirements. By engaging one of the specialist insurance advisers we work with, you are guaranteed to get the best possible advice to ensure that you and your family are protected in the case of your death, disablement, loss of capacity or your ability to generate an income.
It is especially important if you already have insurance in place to have them reviewed on a regular basis as insurance companies are constantly innovating and adding new features and benefits (often at reduced premium rates also).
If you already work with a financial planner, we will liaise with them in regards to documenting your overall investment strategy including your insurance considerations – you don’t have to do anything!
Further changes from 1 July 2014 – opportunity:
The above change relates to the 2013 financial year, however there are some more changes that have been passed that come in to play from 1 July 2014.
Most total and permanent disability (TPD) insurance offered via industry and retail superannuation funds falls under the ‘any occupation’ definition, which means:
If an insured is gainfully employed when their disability begins, ‘unable to work’ under the any occupation definition means they are unable to work at their usual occupation or any other occupation they are reasonably suited to by way of education, experience or training.
The above is a very wide definition and this type of policy is better than no insurance, however most advisers would recommend that you obtain a TPD insurance policy with an ‘own occupation’ definition, which means:
If an insured is gainfully employed when their disability begins, ‘unable to work’ under the own occupation definition means they are unable to work at their own occupation and not be working in any occupation for a continuous period for at least six months.
The major change which impacts the choice of TPD policies comes into place on 1 July 2014, where any new TPD insurance policies taken out by trustees of a SMSF needs to be an own occupation policy. This change is to prevent circumstances where a member of a SMSF receives a payout from TPD policy but is unable to access the proceeds because they haven’t met the superannuation law definition of ‘permanent incapacity’ (which is almost identical to the any occupation definition above).
In most cases it is preferable to hold TPD and life insurance inside your SMSF rather than in your personal name because:
- You don’t have to pay the premiums from your personal cash flow
- The premiums are tax deductible for your SMSF (own-occupation – 67% deductible, any occupation – 100% deductible)
- Any proceeds from the policy can remain in a tax effective environment
All of this means that between now and 30 June 2014 if you have a TPD insurance policy in place, you need to have it reviewed, because if you wait until after this time your choice of policies will be significantly reduced.
If you have any questions on any of the above, please contact us, give us a call on 1300 889 282 or speak to a your financial planner.
Kris Kitto
General Manager
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