SMSF trustees should consider accessing permanent disability insurance from within their funds, particularly if they are finding cost-of-living pressures have made cover outside their fund too expensive, according to an SMSF technical specialist.
SuperConcepts SMSF technical support executive manager Nicholas Ali said he had observed a growing trend among newly established SMSFs where members are choosing not to obtain disability insurance.
“If you look at the ATO data, the 35-55 age group are the ones that are setting up SMSFs. They tend to be underinsured and they have a mountain of debt that they cannot jump over,” Ali told attendees at a SuperConcepts SMSF strategies webinar.
“We’re getting feedback from advisers and accountants that [these SMSF trustees] aren’t looking at or taking up personal insurance. With the pressures on living expenses, one of the first things they see as a discretionary spend is insurance.
“We have [permanent disability insurance] in a SMSF for cash-flow purposes, but also because it provides a benefit to members if they cannot work again in the form of a lump sum from the fund or within the form of a pension from the superannuation fund or a combination of the two.
“Something like this is important when somebody doesn’t pass away and they’re probably more likely to suffer a traumatic event [requiring long-term care] rather than die, especially in that age group.
“So if you can’t fund insurance outside of super because of lifestyle pressures, perhaps the idea is to fund it inside the superannuation fund where you’re reducing your net benefit because of the fact that you’re paying an insurance premium inside a SMSF.”