TPD Insurance In SMSF – Basic Considerations for Cover
Superannuation and TPD insurance are both meant to provide financial security when you may not be able to provide for yourself.
Most people with superannuation also receive some level of life insurance provided automatically, and they can also include their TPD insurance as part of their self managed super fund (SMSF).
When your TPD insurance is held in your SMSF, the super fund becomes the owner of the policy and is also responsible for paying the premiums. This would mean that your premiums would be paid for together with your retirement savings.
Self managed superannuation funds became popular after the global financial crisis led to many Australians losing a large portion of their superannuation. The funds in which investments were made lost their value and many Australians believed they could do a better job managing their own super. An SMSF allows you to indulge in property investment, a popular option today. Another benefit is that you can get TPD insurance in SMSF – the fund can pay the premiums on your TPD insurance policy, which means they do not come out of your pocket.
TPD in super
There are certain benefits to holding your insurance. One of the major benefits is increased personal cash flow as well as tax deductibility of the premiums. Since you premiums are paid by the SMSF, you are not required to come up with the money yourself. This is beneficial if you need to increase your cash flow but still have some level of personal risk insurance. In addition, you can claim tax deduction on the contribution made into your super fund.
Generally, SMSFs can only hold any occupation TPD policies. This is because the any occupation TPD definition is the most closely aligned with the definition of permanent disablement necessary for the release of TPD benefits in superannuation. Most of the policies obtained through superannuation are actually based on this definition in order to avoid claims and release complications. Click here to learn more about policy option.
In the past, it was fully tax deductible as long as the insurance policy complied with relevant regulations. However, since July 2011, the tax deductibility rules for premiums for it, changed. While premiums for any occupation TPD covers remained fully tax deductible, those for own occupation TPD covers became 67 percent deductible while own occupation TPD cover bundled with life cover became 80 percent deductible. Read: How to get a car loan with NO credit?
It is important to get expert advice on whether a self managed super fund would be the right strategy for you before setting it up. There are several drawbacks to holding it or any other super fund. For instance, since the premiums are paid directly from your retirement savings, the amount that will be left when you retire will be eroded because of the premiums. As such, it is advisable to make additional contributions to your SMSF to offset these premium costs. In addition, speaking with your financial adviser before obtaining your insurance is critical in understanding superannuation TPD law.