Q: I have heard that there has been changes to the regulations of an SMSF that now require its members to have insurance cover. I would be most grateful if you could shed some light on this matter as I think that it is an unnecessary expense if they have sufficient funds in the fund to cover them in the event of an incident.
A: A new requirement for self-managed super funds (SMSFs) to consider insurance was introduced in August. However, the key word here is ‘consider’ – there is no requirement for your fund to ‘purchase’ insurance.
Instead, the new rule demands you ‘consider’ if your fund should have insurance over at least one member of your super fund. After having demonstrated that you have considered this, your fund may decide not to buy any life insurance.
The new super laws don’t specify which member or the type of insurance that might be necessary. You’ll need to consider the type and level of insurance you need for a particular fund member. In most cases, this might be death, total and permanent disability and salary continuance insurance. It probably won’t be trauma insurance because super is often not the best vehicle for this type of insurance.
Further, these laws also don’t say how often you have to consider the need for insurance. It might be whenever you consider your fund’s investment strategy, which also has to be reviewed ‘regularly’. This probably means at least annually.
This rule has been put in place because less than 15% of SMSFs purchase life insurance. Perhaps SMSF trustees are purchasing insurance outside super, or using the insurance option provided by a retail super fund or industry fund or deciding they don’t need insurance.
You can show you’ve considered this issue in documented changes to your fund’s investment strategy or in the minutes of your trustee meetings held throughout the year.
