How to Buy Life, TPD, and Income Protection Insurance Through Your SMSF

Trustees and members of self-managed super funds (SMSFs) have the flexibility to purchase Life, Total and Permanent Disability (TPD), and Income Protection insurance directly through their fund.

Owning these insurances within the SMSF structure can enhance retirement protection, support members’ families, and provide strategic tax advantages when managed in accordance with strict legal requirements.

How Insurance Works in an SMSF

SMSFs are legally permitted to purchase and pay premiums for Life, TPD (“any occupation” only), and Income Protection insurance for their members. These insurances must be taken out in the name of the SMSF, paid for from the fund’s bank account, and structured so that benefits align with the SMSF’s sole purpose of providing member retirement benefits or death and disability payments.

Trustees must regularly document consideration of members’ insurance needs as part of the fund's investment strategy, a requirement under SIS Regulation 4.09.

SMSFs may use any Australian-licensed bank, insurer, or insurance broker to arrange cover, allowing trustees the freedom to customise policies to individual members’ needs. However, the cost of obtaining bespoke insurance can be higher in SMSFs than pooled group cover in industry or retail super funds, as group cover negotiates bulk-member rates unavailable to SMSFs.

It’s common for industry super funds to offer lower premiums and automatic acceptance, while SMSFs may involve personal medical and financial underwriting, which in complex cases can be expensive.

Comparing SMSF and Retail Fund Insurance

While SMSFs allow direct control over choice of provider, coverage, and beneficiaries, industry and retail super funds deliver economies of scale and typically cheaper group insurance premiums.

SMSF members with complex needs, specific risk profiles, or requirements for higher or tailored cover may prefer custom SMSF solutions despite higher potential costs. Trustees should review their insurance solution annually to compare value, relevance, and suitability for fund members.

Tax Deductibility

Premiums for Life, TPD and Income Protection insurance are generally tax deductible to the SMSF, but not to individual members. The fund pays the insurer directly and claims the deduction in its annual tax return, provided the insurance is for permitted cover and pays valid superannuation benefits upon claim. Trustees are prohibited from paying for trauma or critical illness cover through an SMSF, and insurance must always align with the sole purpose test.

Insurance Purchase

Trustees can consult external insurance brokers or financial advisers, who may carry out extensive underwriting and personal history checks for tailored insurance solutions. Fees for medical or financial assessments can be significant, especially for high-value or complex applications.

The SMSF decides the provider and pays all premiums from the fund's assets according to formal trustee decisions.

For mortgage brokers assisting SMSF clients, understanding insurance strategy is critical. Insurance held within the SMSF can enhance estate, debt, and loan risk management, with implications for loan eligibility and property investment structures in SMSF portfolios.

Compliance and Documentation

Trustees should ensure all insurance arrangements are formally reviewed and documented within the fund’s minutes and investment strategy, as required by ATO regulations. Choice of insurance provider, type and level of cover, and beneficiary nominations must be consistent with SIS Act requirements and ATO guidelines. In all cases, premiums must be paid promptly from the SMSF, and policies should not be transferred from personal to SMSF ownership.

Life, TPD, and Income Protection insurance in SMSFs drive flexibility and customisation for members but require diligent attention to cost, compliance, documentation, and suitability. By working with insurance, mortgage, and financial professionals, trustees can ensure that insurance strategies protect retirement benefits while aligning with both tax and legal requirements.

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DISCLAIMER: This article is for general informational purposes only and does not constitute financial, accounting, legal, or SMSF advice. It does not consider your personal financial situation or objectives. Please consult a licensed professional before acting on any information regarding SMSFs, compliance, or investments. #SMSFInsurance #LifeInsuranceSMSF #TPDSMSF #MortgageBrokerAdvice