Debt Protection & Insurance For Self-Managed Super Funds

Debt Protection & Insurance For Self-Managed Super Funds

Mark Taylor,

With self-managed super funds now holding investments in a wider range of assets, including property assets, many have a large percentage of assets tied up in a single investment, leading to lack of liquidity. Appropriate insurance cover becomes especially important when SMSFs (Self-Managed Super Funds) look at property investment and have debt.

Our Strategic Partner, Craig Boss - Wealth Protection Adviser with Core Private Wealth, advises the importance of insurance cover when SMSFs look at property investment and have debt. 

Debt Protection & Insurance For Self-Managed Super Funds

Often investors overlook the need for insurance when they establish a SMSF and they may not be aware that any existing insurance they have with an industry fund or retail offering may be lost when rolling into an SMSF. 

The unexpected payout of a member’s benefits (due to a member’s death or total and permanent disability) could leave the SMSF facing a liquidity crisis. Without appropriate insurance in place, assets such as property within the SMSF may need to be sold to pay out member benefits. This is a big issue if the SMSF members are unrelated parties who have bought business real property for the purposes of locating their business therein.

This could have a number of devastating effects including: 

1. Property assets are sold under pressure to pay back loans which may result in low realisation values, and potential loss of income from property asset; 

2. Total and permanent disability of a member results in access of 100% of superannuation benefit as a lump sum which effectively wipes out the fund; and 

3. Delays in payment to beneficiaries due to time to liquidate assets. 

There have been further changes relating to purchasing of insurances associated with SMSFs. Importantly, SMSF trustees are legally obliged to consider insurance in the fund and may need to show evidence of such consideration if requested. Simply passing a resolution that such insurance has been considered may not be sufficient. 

Some things to note - especially prior to July 2014 - include: 

1. Some insurance policies may not be tax deductible when owned by a SMSF, as opposed to personal ownership; 

2. Changes in place from July 2014 mean that 'own occupation' TPD insurance owned by a SMSF where benefits are paid if the insured is not able to work, may be trapped in the fund; 

3. Could self-owned insurance be a more appropriate option due to age or illness? 

Like To Learn More?

If you would more information about debt protection and insurance for your self-managed super fund, please see your current insurance broker or contact Craig Boss on 0412 335 235 or by email: 

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