The provision of insurance both inside and outside superannuation is a huge opportunity for the SMSF industry as currently less than 13 per cent of SMSF trustees hold any form of life insurance.
Speaking at the SMSF Association 2016 National Conference in Adelaide, BT life insurance products acting national manager Jeffery Scott said the industry had over 1 million members and 500,000 SMSFs, but the majority did not have life insurance.
“Inside the legislation under the Superannuation Industry Supervision (SIS) Act it states that as part of your investment strategy, you must have an insurance strategy,” Scott pointed out.
“Does this mean you have to have insurance? No, it doesn’t.
“What it says is you must have a strategy for those individuals based on their individual personal circumstances.”
As a result, if there were multiple people in the fund, multiple separate strategies might be needed as there was no one-size-fits-all insurance proposition that would be suitable or could be applied for all trustees, Scott said.
Not all trustees would require insurance, however, they did all require a strategy to come to that conclusion, he added.
The reason why insurance in super was so low was because many trustees had not considered it, which presented an enormous opportunity for advisers, he said.
Prior to 1 July 2014, any insurance could be held inside super, yet after this date, any new insurance policies have to meet a SIS Act condition of release.
Advisers should also consider the tax ramification of where the insurance was held as that could significantly alter the monetary value trustees were left with, Scott said.
Those who held an insurance policy outside super, where a relative was the beneficiary, were not required to pay any tax on the insurance payout, however, if that same policy was held inside an SMSF, they would be required to pay almost one-third for the exact same level of cover, he said.
“Whether you put it inside or outside [super] does make a difference,” he said.
“When you put the insurance inside super for death benefits, you need to be aware the potential tax consequences depend on who the money is paid to.”