Retirement
Some must-knows for holding insurance in super
There are various traps associated with using industry or retail super funds to obtain cheaper insurance, however, there are steps SMSF trustees can take to avoid being caught out.
Some must-knows for holding insurance in super
There are various traps associated with using industry or retail super funds to obtain cheaper insurance, however, there are steps SMSF trustees can take to avoid being caught out.
Most people have heard of the strategy to keep existing cover in an employer or industry super fund because rates are cheaper on group policies or health concerns have arisen since cover was first taken out and cover could be difficult to replace.
After a decade of using this strategy the traps are now becoming apparent. We know approximately 15 industry funds and 6 employer funds through retail providers that require a minimum balance or ongoing contributions with a 12-month period or else the insurance cover is terminated or invalidated.
In most cases if it is terminated or cancelled members are informed of the change but some people only find out at claim time because premiums are paid but a clause in the insurance policy invalidates a claim because contributions have stopped or balances have dropped.
Over the last few years I have met SMSF trustees who have come to me after the fact and those conditions had caught them out resulting in claims being denied. Even if discovered when cancelled it is often too late as people cannot get replacement cover elsewhere due to a health condition.
So to avoid falling foul of these conditions:
- Read the insurance product disclosure statement of the policy to see if there is any reference to minimum balances or requirement for ongoing contributions for the insurance to continue.
- Call the fund and ask for confirmation of the above in writing.
- Leave enough to cover the minimum balance and one year's insurance premiums in the fund.
- Rollover only the amount above this to your SMSF. Do not use the ATO's rollover initiation request to transfer whole balance of superannuation benefits to your self-managed super fund (NAT 74662). Contact the specific fund for their partial withdrawal/rollover form.
- Let your employer SG contributions continue to be paid to the fund holding the insurance. If you are salary sacrificing you can ask for those contributions to be allocated to your SMSF but it may be simpler to let it all go to the existing fund.
- Annually, or when a balance is sufficiently large, do another partial rollover of the excess funds to the SMSF, and check the rules again to make sure they have not changed.
- Reference those insurances in your SMSF investment strategy under "consideration of insurance needs of the members" so you don't forget about them.
So be very careful when your clients get the paperwork for their new SMSF as the mountain of documents for your signature can often mean that you miss the importance of what you are signing. I believe that the ATO form mentioned above is one of the most dangerous documents and you should avoid using it.
Liam Shorte, principal wealth adviser and SMSF specialist, Verante Financial Planning
RELATED ARTICLES
Superannuation
Aware Super triumphs at Chant West Super Fund Awards with top honours
In a significant achievement for Aware Super, the fund has clinched top honours at the Chant West Super Fund Awards, securing both the Super Fund of the Year and Pension Fund of the Year titlesRead more
Superannuation
NGS Super rolls out enhanced member advice services with a focus on accessibility
In a significant move to make financial advice more accessible, NGS Super has unveiled an enhanced suite of member advice services, featuring a new digital advice platform. This initiative aims to ...Read more
Superannuation
US data centre investment highlights the benefits of decarbonisation and digitalisation
In a compelling demonstration of the global shift towards decarbonisation and digitalisation, Rest, one of Australia's largest profit-to-member superannuation funds, has underscored the value created ...Read more
Superannuation
Aware Super bolsters support for financial advisers amid growing partnerships
In a strategic move to enhance its growth trajectory, Aware Super has announced a significant investment in bolstering support for financial advisers, aiming to deliver superior retirement outcomes ...Read more
Superannuation
TelstraSuper and Aware Super merge, creating a powerhouse with over $235 billion in funds
In a strategic move that underscores the growing trend of consolidation in the superannuation industry, TelstraSuper and Aware Super have successfully completed their merger, creating a formidable ...Read more
Superannuation
Parliamentary support heralds a fairer superannuation system for under-18s
In a significant development for Australia's superannuation landscape, Rest, one of the nation's largest profit-to-member super funds, has praised the recent cross-parliamentary support for extending ...Read more
Superannuation
Australia's superannuation system sets global benchmark for retirement savings
Australia has quietly established one of the most effective retirement savings cultures in the world, largely by eliminating the human element from the decision-making process. The country's ...Read more
Superannuation
Rest appoints new senior leaders to drive data and tax strategy
In a strategic move to bolster its capabilities in data management and tax governance, Rest, one of Australia's leading profit-to-member superannuation funds, has announced the appointment of two ...Read more
Superannuation
Aware Super triumphs at Chant West Super Fund Awards with top honours
In a significant achievement for Aware Super, the fund has clinched top honours at the Chant West Super Fund Awards, securing both the Super Fund of the Year and Pension Fund of the Year titlesRead more
Superannuation
NGS Super rolls out enhanced member advice services with a focus on accessibility
In a significant move to make financial advice more accessible, NGS Super has unveiled an enhanced suite of member advice services, featuring a new digital advice platform. This initiative aims to ...Read more
Superannuation
US data centre investment highlights the benefits of decarbonisation and digitalisation
In a compelling demonstration of the global shift towards decarbonisation and digitalisation, Rest, one of Australia's largest profit-to-member superannuation funds, has underscored the value created ...Read more
Superannuation
Aware Super bolsters support for financial advisers amid growing partnerships
In a strategic move to enhance its growth trajectory, Aware Super has announced a significant investment in bolstering support for financial advisers, aiming to deliver superior retirement outcomes ...Read more
Superannuation
TelstraSuper and Aware Super merge, creating a powerhouse with over $235 billion in funds
In a strategic move that underscores the growing trend of consolidation in the superannuation industry, TelstraSuper and Aware Super have successfully completed their merger, creating a formidable ...Read more
Superannuation
Parliamentary support heralds a fairer superannuation system for under-18s
In a significant development for Australia's superannuation landscape, Rest, one of the nation's largest profit-to-member super funds, has praised the recent cross-parliamentary support for extending ...Read more
Superannuation
Australia's superannuation system sets global benchmark for retirement savings
Australia has quietly established one of the most effective retirement savings cultures in the world, largely by eliminating the human element from the decision-making process. The country's ...Read more
Superannuation
Rest appoints new senior leaders to drive data and tax strategy
In a strategic move to bolster its capabilities in data management and tax governance, Rest, one of Australia's leading profit-to-member superannuation funds, has announced the appointment of two ...Read more
