Aaron Dunn, CEO of Smarter SMSF, said in a recent technical update that insurance forms part of the investment strategy requirements of an SMSF, not only within the covenant but also within the operating standards.
“The regulation within the SIS Act is 4.09 and that talks about the requirement that we need to consider a contract of insurance on an ongoing obligation as part of the investment strategy,” Dunn said.
Tim Miller, head of education and technical for Smarter SMSF, said although insurance isn’t mandatory inside of super, there are specific styles of policies that should be considered from a compliance and operating standard point of view.
“[These are] based on death, permanent incapacity, temporary illness and temporary capacity, and it should be determined whether it is appropriate to hold that insurance inside the SMSF by contemplating balances, risk profiles, health, and other issues,” he said.
“In many instances, the clients will have insurance elsewhere and it won’t be appropriate, but at least they get to consider all of the other things such as taxation implications, deductibility and beneficiaries in the super environment.”
Dunn said tying insurance back to the SMSF requires looking at the deed and whether it aligns with the requirements and to a condition of release.
“In most instances, we need to look at how the premiums will apply, and the deductibility of those premiums because of the different levels of deductibility based upon those.”
“Then, of course, there are requirements around how insurance proceeds will be dealt with. When we think about how this needs to be put in place, we can see how it aligns with the broader investment strategy requirements.”
Consequently, it is important to ensure that the fund is actively reviewing the strategy at least annually.
“Circumstances will change whether insurance is there for the purposes of younger kids and debts, but ticking off those boxes on a year-on-year basis becomes absolutely crucial for what the operating standard requires us to do.”
