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SMSF Life Insurance

Compare life insurance options with Savvy and find out more about how life insurance works through a SMSF.

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, updated on July 19th, 2023       

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Life Insurance

We’ve partnered with Compare Club to bring you a range of life insurance policies to help you compare them side by side.

A self-managed super fund (SMSF) may primarily be a way to save for your retirement, but it can also allow you to purchase life insurance. If you’re wondering how these policies stack up against the rest of the market, Savvy can help you compare.

By comparing through us, you’ll be able to weigh up the inner workings of policies from some of Australia’s leading insurance companies to see how they compare to SMSF life insurance. You’ll get to consider different benefit limits, premiums and inclusions to get the best bang for your buck. Get a quote through us and start comparing today. 

What is SMSF life insurance and how does it work? 

If you’re managing a SMSF so you have enough money for your retirement, you may get the option of taking out life insurance through your fund. Under laws passed in 2013, SMSF trustees must make life insurance available to members through their funds. While you aren’t obliged to take it out, funds are required to offer it regardless.

While SMSFs aim to help you put money away for retirement, they work differently from your standard superannuation fund which can also offer life insurance. The main difference is that SMSF members are also trustees, so it’s their responsibility to ensure the fund complies with rules around super and tax benefits.

By buying a life insurance policy through your SMSF, your premiums are paid straight out of your super fund rather than your bank account, meaning you won’t have to make out-of-pocket payments. Life insurance payouts are made to the super fund and subsequently distributed to your nominated beneficiaries. It’s essential to keep this in mind and let the recipients of your policy know about this process in case they need to claim on your behalf.

What types of life insurance are available through my SMSF?

If you’re considering taking out life insurance through your SMSF, you may have a few options regarding the type of coverage you can purchase. These will usually include the following:

  • Life cover: life cover can provide your beneficiary with a lump sum payout if you die or are diagnosed with a terminal illness. This can give your loved ones a financial safety net if your income is removed from the family financial equation. The maximum amount of coverage and age limits may vary depending on the policy you buy and its terms and conditions, but you may be able to purchase cover up to the age of 75 and maintain it up to the age of 100 (or older with certain insurers).
  • Total and permanent disability (TPD) insurance: this type of life insurance can pay your loved ones or yourself a lump sum if you’re permanently disabled and unable to work. However, super funds only offer Any Occupation TPD cover, which means you aren’t able to complete any work suitable for your experience, education and training.
  • Income protection insurance: this type of insurance can pay you a monthly benefit to help cover day-to-day expenses if you’re temporarily unable to work because of an injury or illness. How much you receive and the length of time over which you can receive it will depend on the level of coverage you buy. While income protection policies generally enable you to receive up to 70% of your regular wage, you may be able to set up this type of cover through your SMSF with a benefit worth 100% of your income.

You can't purchase trauma insurance, as the only conditions of release applicable to life insurance through a SMSF are death, terminal illness or temporary or permanent incapacity. Own Occupation TPD cover, which means you aren’t able to return to your job but can continue to work in another position related to your experience, education and training, also isn’t available through SMSFs.

What are the alternatives to SMSF life insurance?

If you don’t want to purchase a life insurance policy through your self-managed super fund, you can buy a policy directly from an insurance company or through a broker. However, if you’re doing so, it’s important to compare a wide range of options to find a policy that is appropriate for your needs. That way, you’ll be able to weigh up the different benefits, inclusions and exclusions and other extras to find an offer you consider most suitable. However, this can be a significant time investment and it’s easy to miss great offers if you don’t know exactly where to look.

Alternatively, you can purchase a life insurance policy through Savvy. We can help you find a policy by comparing a range of offers from a panel of trusted life insurers all in one place. You can even have the paperwork involved in buying a policy handled for you when you purchase through us. The whole process, from comparing to buying, can be done online, so you can get started with a free quote through us today.

Types of life insurance

Why compare life insurance through Savvy?

Pros and cons of SMSF life insurance

PROS

Convenient premium payments

When compared to traditional life insurance, SMSF life insurance enables you to make your payments directly through your super, meaning you won’t have to go out of your way to do so from your bank account each month or year.

Tax benefits

Getting life insurance through your SMSF can come with certain tax benefits. For instance, the premiums paid can be tax-deductible for the SMSF, which can lead to lower payable taxes on your contributions.

Tailor cover to protect your assets

Borrowing money from your SMSF could mean your assets are taken and sold to recoup funds in the event you pass away or are no longer able to repay your debt. Life insurance can provide security that the loan debt can be covered should one of those events take place.

CONS

Potentially diminished super

Because your premium payments are made directly from your super, you may have less to retire on by the time you’re ready to access your funds.

Fewer cover types available

There are fewer options when it comes to types of coverage through SMSFs, so if you wanted to take out trauma cover, for instance, you wouldn’t be able to do so.

Potentially more complex payout process

Because payouts are made to the fund, rather than your family, you’ll need to sort out how the money is to be distributed and find out how it might be taxed in line with your fund’s rules.

Frequently asked questions about SMSF life insurance

Can I purchase a joint SMSF life insurance policy?

No – you won’t be able to take out a joint life insurance policy through your SMSF. In most cases, insurance companies will allow couples to take out two separate policies and link them to make it easier to manage, while others may offer a combined cover option.

How do I make a claim through my SMSF life insurance?

The trustee of your policy will need to make a claim if you pass away and, if the claim is successful, the funds will be paid into your SMSF account. The payout will only be able to be transferred out of the fund if the beneficiaries have met certain release conditions, such as the owner of the fund dying, being diagnosed with a terminal illness or being temporarily or permanently disabled. Once these have been met, the SMSF should be able to pay the lump sum to the nominated person. 

Should I have life insurance policies inside and outside my SMSF?

It’s possible to get life insurance both within and outside of your SMSF. It might be helpful if you're looking for coverage like trauma insurance which isn't often included in superannuation-related products. If, however, the coverage you're receiving from both policies is essentially identical and each is suitable for your needs on its own, it may not be worthwhile to maintain both, as you’ll be paying premiums for two policies (one directly and one indirectly via super deductions).

Can I transfer my existing life insurance policy into my SMSF?

No – you won’t be able to transfer any existing life insurance policy over to your SMSF. You’ll need to cancel your current policy and take up a new one through your SMSF if you wish to make the switch.

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Disclaimer:

Savvy is partnered with Compare Club Australia Pty Ltd (AFS representative number 001279036) of Alternative Media Pty Ltd (AFS License number 486326) to provide readers with a variety of life insurance policies to compare. Savvy earns a commission from Compare Club each time a customer buys a life insurance policy via our website. We don’t arrange for products to be purchased from these brands directly, as all purchases are conducted via Compare Club.

Savvy does not compare all life insurance policies or providers currently operating in the market. Any advice presented above or on other pages is general in nature and doesn’t consider your personal or business objectives, needs or finances. It’s always important to consider whether advice is suitable for you before purchasing an insurance policy.

For any further information on the variety of insurers compared by Compare Club or how their business works, you can read their Financial Services Guide.

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