Putting a split total and permanent disablement (TPD) insurance policy in place, where part of the cover is held within an SMSF and a separate part outside of the fund, is a strategy trustees can employ to ensure policy definitions not allowable under superannuation law can be included, a specialist adviser has said.
Specifically, Accurium head of education Mark Ellem advised a split insurance policy can address situations where an individual wishes to have TPD cover held inside their SMSF, but wants circumstances where they are no longer able to work in their ‘own occupation’, as well as ‘any occupation’, to be built in.
Ellem pointed out the problem exists because from 1 July 2014 SMSFs were no longer able to take out new policies where the TPD definition is based on ‘own occupation’.
“Split policies effectively allow the policy to be split between that part that is allowed under superannuation, so for a TPD the ‘any occupation’ part of the policy is under the superannuation umbrella, whereas the ‘own occupation’ part is outside [the superannuation umbrella],” he said.
He noted the premium would also then be split between what the individual was obligated to pay and what the SMSF had to pay.
“Typically it is understood [the split] would allow about 70 per cent of the premiums for an ‘own occupation’ TPD to be paid by the fund, so 70 per cent of the premiums would relate to ‘any occupation’ basis and would be paid by the fund, and 30 per cent [of the premiums would be] paid by the individual,” he said.
“So we’ve got those split policies to cover members [and allow them to] have both the policy that aligns with the condition of release under superannuation and also the extra benefits that they may want to have for personal reasons.”