New legislation means that many SMSF trustees must for the first time consider whether their fund should hold life insurance cover for its members.
The new law requires that a trustee of a superannuation fund must formulate, review regularly and give effect to an investment strategy that has regard to the whole of the circumstances of the fund.
For an SMSF, this includes whether the trustees of the fund should have life insurance that provides cover for one or more members of the fund.
One reason the legislation has been introduced is that studies have shown that fewer than 13 per cent of SMSFs have insurance.
In many ways, the change is good news for SMSF members: Holding life insurance through a superannuation fund is usually a tax-effective way of having insurance.
The level of cover is not prescribed, and trustees are expected to determine for themselves the type and level of insurance members might require.
In meeting this requirement, trustees are required to take into account the personal circumstances of their members. For example, if a member holds insurance cover outside the SMSF, this should be considered in determining how much insurance, if any, the SMSF should hold.
For newly-established SMSFs, insurance should be considered when formulating the initial investment strategy. For existing SMSFs, this practice should form part of the regular investment strategy review.
It is recommended that trustees document decisions in the fund’s investment strategy or minutes of trustee meetings held during the income year, to show they have considered the insurance needs of members and thereby satisfied the regulatory requirements.
Peter Speechley is a partner with accountants and business and financial advisers HLB Mann Judd, Perth.
SUBSCRIBE TO THE SMSF ADVISER BULLETIN
- 17 Aug 2017Industry questions ATO’s capacity for new reportingBy Miranda Brownlee
- 17 Aug 2017Qld succession law changes tipped to impact SMSFsBy Miranda Brownlee
- 16 Aug 2017Contribution limits restricting future balances, warns mid-tierBy Staff Reporter
- 16 Aug 2017SMSF firms underprepared for events-based reportingBy Miranda Brownlee
- 15 Aug 2017SMSF auditor disqualified for misconductBy Staff Reporter
- 15 Aug 2017Class gains market share in financial year resultsBy Staff Reporter
- view all
- Industry questions ATO’s capacity for new reporting
With events-based reporting set to generate huge amounts of data, concerns have been raised about whether the ATO’s systems will be able t...read more
- Contribution limits restricting future balances, warns mid-tier
Clients hoping to accumulate a superannuation balance of $1.6 million by age 65 will need to start taking full advantage of concessional con...read more
- SMSF firms underprepared for events-based reporting
A straw poll has revealed that the majority of SMSF firms currently feel their firm is not equipped to deal with the proposed events-based r...read more
- view all