Introduction
You can structure certain types of insurance to be held within your super fund — including your Self-Managed Super Fund (SMSF). You can also link policies, so part of your cover sits inside super and part outside. Keep reading to see how super-linked insurance works, how SMSFs can be used to hold insurance, and the difference between “any occupation” and “own occupation” TPD cover.
⚠️ This content is general information only and does not take into account your personal circumstances. Always seek professional advice before making financial decisions.
🛠️ Structuring Insurance Policies within the Superannuation environment
Insurance policies can be structured to be owned by a super fund trustee, meaning that the insurance policy is legally owned by the trustee on your behalf. Premiums are then paid from your superannuation balance rather than your personal funds. This structure is commonly used for policies such as:
- Life Insurance (Death Cover)
Premiums are deducted from your super balance, making it easier to manage regular payments. - TPD Insurance
Available under an “any occupation” definition, which means you’ll only be covered if you’re unable to perform any job. This is a more restrictive definition compared to “own occupation” TPD insurance. - Income Protection Insurance
Provides income replacement if you’re unable to work temporarily. The premiums can be paid from your super balance, but there are often restrictions on benefit periods.
🛑 TPD Coverage: Any Occupation Inside Super and Own Occupation Outside Super
One of the most important distinctions when structuring TPD insurance is the difference between “any occupation” and “own occupation” cover.
Any Occupation can be funded from the balance of your super, however, Own Occupation cannot.
You may have the option to ‘superlink’ Any and Own Occupation TPD if you prefer the security of an Own Occupation definition but appreciate the increased cashflow that superannuation funding affords. You can elect to pay most of your premium from super, and pay the increased portion attributed to your Own Occupation definition from your bank account.
🏠 SMSFs and Insurance Policies
Self-Managed Super Funds (SMSFs) can hold insurance policies, including life, TPD, and income protection cover. With an SMSF, you become the trustee, meaning you have more control over the structure of your insurance policies. Here’s how it works:
- SMSF Insurance Ownership
The SMSF holds the insurance policy and pays premiums from the fund’s assets. This arrangement can be beneficial if you want more control over your retirement savings and insurance decisions. - Premiums from SMSF
Premiums for insurance policies can be funded through the SMSF balance, but you must ensure that the premiums don’t exceed the allowable limits under the super rules.
⚖️ Things to Consider with SMSFs and Superlinked Insurance
- Tax Benefits and Drawbacks
Insurance held within an SMSF may come with tax advantages, but it’s important to ensure your SMSF complies with all relevant superannuation laws. - Compliance and Trustee Responsibilities
As an SMSF trustee, you’ll need to ensure your fund complies with superannuation regulations, and you may need professional guidance to avoid penalties. - Release Conditions for Payouts
Any payouts from insurance within SMSFs are subject to superannuation release conditions, meaning funds may not be accessible immediately after a claim.
Conclusion
Structuring your insurance policies within super or using an SMSF can provide greater flexibility and tax advantages, but it requires careful planning and compliance with superannuation rules. Always seek professional advice such as Thrive Financial before proceeding to ensure the structure fits your needs.
If you’re curious about which types of insurance can be held inside super, and how that might fit with your retirement strategy, don’t forget to check out our blog on which insurance covers can be held inside super
For more information on Self-Managed Super Funds (SMSF), visit the Australian Government ATO website:
👉 https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/self-managed-super-funds-smsf
