Administration, Insurance, SMSF, Superannuation

No distinction in insurance benefit treatment

Life insurance SMSF Self-managed superannuation Premiums Death benefits Member benefits

Benefits paid from a superannuation-funded life insurance policy do not have different status to other benefits, unless held by a separate super vehicle.

SMSF members holding life insurance via their fund should be aware any payments made under the policy will not be held separately, but become part of their member or death benefits, a technical specialist has reminded practitioners.

BT technical consultant Tim Howard said life insurance held through any form of superannuation would be payable to the trustee of the member’s SMSF when a trigger event occurs and there was no distinction made in the fund due to the source of the payment.

“There is not a separate payment to the member’s superannuation benefit. It will form part of their member benefit and in the event they die, along with their accumulated super savings, it becomes one large death benefit that will be administered by the trustee of the superannuation fund,” Howard said during an adviser briefing today.

“One time where it might be separate would be if the member was holding life cover through super which was a separate product to the member’s accumulation interest.

“They might be paying the premiums via rollover or a separate contribution to a life cover super product. In that case, that is a stand-alone super product that holds the insurance, which would be separate to the member’s death benefit in their other fund.”

He said while the benefits would not be separated, the advantage of holding life insurance via superannuation was the ability to fund premiums from the member’s accumulation balance.

While this would provide a cash-flow advantage outside the fund, it would reduce that balance, but this could be overcome with additional contributions, he added.

“Even though there is a premium drag on your retirement savings, there is no reason why the member can’t make additional contributions to super, such as personal deductible contributions,” he said.

“Those contributions go in and the member gets a tax deduction and can be in a position where they fund that life insurance with pre-tax earnings via those contributions due to the deductibility of the premium to the trustee of the super fund.”

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