Personal insurance uptake a victim of rising cost of living

“With all these other [financial] pressures on people, one of the first things they see as a unnecessary discretionary spend is insurance cover,” Mr Ali said.

While personal insurance is not compulsory for an SMSF, Mr Ali said members should consider it.

“But if a member says they don’t want it, there is nothing more a trustee can do about it,” Mr Ali said.

“As the cost of living is going up, insurance costs are seen as a discretionary spend, but it shouldn’t be, but it is one of the first things people drop off when things are really tight.”

Mr Ali said from the anecdotal evidence within SuperConcepts, it is the younger cohort of new SMSF establishments that seem to be deciding against the uptake of personal insurance both inside and outside of super.

“It’s that generation shift of those who are setting up SMSF now – the 35-55-year age gap – that tend to be under-insured,” he said.

“They have a mountain of debt they have to jump over but something like Total Permanent Disability insurance is important when somebody doesn’t pass away.

“You are probably more likely to suffer a catastrophic event than pass away in that age group.”

However, Mr Ali said the tax impost on personal insurance inside an SMSF is not as bad as many think.

“If people can’t fund an insurance policy outside of super, they may be able to fund it inside a super fund,” he said.

“You may be reducing your net benefit by paying a policy inside a super fund but the tax impost is not as high as many people think.”

Mr Ali said most people who are employed get a superannuation guarantee from their employer and suggested if people can’t afford to pay personal insurance outside of super, they can use the compulsory cash flow into their SMSF to fund such a policy.

“If money is going into an SMSF as a compulsory payment you can use that to invest in an insurance policy,” he said.

“The trade-off is you may have less money to invest but you have an insurance policy.”