Financial Planning, Insurance

Advice vital in insurance decisions

It is crucial for SMSFs to seek professional advice when making decisions on insurance within their fund to competently navigate the insurance minefield, according to wealthdigjtal.

Wealthdigital technical manager Rob Lavery said SMSF trustees need to think about the fund members’ insurance needs as part of the investment strategy, adding it is sometimes in their interest to retain the SMSF member’s public offer fund due to price, underwriting requirements or health.

“ASIC’s report 575 identified that almost 20 per cent of SMSF members did not even consider their insurance needs when they established their SMSF,” Lavery said.

“That said, almost three-quarters of the times an SMSF member was advised to maintain their previous super fund when they established their SMSF, the quality and price of the insurance in the old fund was the main reason.”

In light of the statistics, the Australian Securities and Investments Commission’s (ASIC) guidance to those providing advice on SMSFs has a strong focus on insurance advice, including retaining insurance in the client’s previous fund, he noted.

“But what of those who do not receive advice from a licensed planner when setting up their SMSF? They are left without the support they need to make such important decisions,” he said.

Members require advice even when the optimal strategy is to let insurance in the client’s previous fund lapse and set up new insurance, including advice on tax deductibility of insurance premiums in super and the ability for attorneys to extend binding death benefit nominations, he said.

He quoted statistics from ASIC report 587, including the success rates of claims dropped 9 per cent when non-intermediated, while almost half of all direct policies lapse in the first three years, to illustrate issues associated with purchasing insurance without seeking professional advice.

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