While the main purpose of a Self Managed Super Fund remains savings for retirement, the insurance aspect remains equally important, playing crucial role in the event of the member’s death or disability. SMSF trustees are not forced to but as a mandate, they must consider Life and Total and Permanent Disability (TPD) insurance within the fund.
Life insurance, that is generally provided with TPD insurance, should be genuinely considered as it provides a lump sum amount to the dependents in case of member’s death. The premium paid is tax-deductible to the super fund’s income.
Total and Permanent Disability (TPD) Insurance
TPD insurance (also 100% tax deductible) provides assistance to meet the financial commitments in case of a member becoming totally and permanently disabled.
Advantages of Insurance in the SMSF
1. Trustees can choose an insurance as per their requirements
2. Contributions can be used to pay insurance premium
3. Premiums paid through the fund can be utilized for debt repayment, rent, etc.
Downsides associated with Insurance in a SMSF
1) Insurance in Self Managed Super Funds is more expensive than in retail or industry funds due to no wholesale cost savings.
2) Members need to pass the medical test before setting up an SMSF.
Besides, life insurance and TPD insurance, the SMSF also supports Income Protection Insurance and Trauma insurance.