SMSF Trauma Insurance
There are some advantages to holding your trauma policy within your SMSF. As with TPD insurance, the premiums you pay on your trauma policy cannot normally be offset against your taxable income.
Since member contributions to your SMSF are usually tax-deductible, using the money in your fund to pay your premiums effectively makes your insurance income tax free. If your fund receives employer contributions, or there is a sufficient cash balance, then you may not have to put additional money into the SMSF to pay for your premiums, which is great for your cash flow.
However, there can be a drawback. As with any other life insurance cover held by your SMSF, the policy will legally belong to the fund. If you need to make a claim, any payout will belong to the SMSF and will be preserved with your other super benefits until you satisfy the conditions of release.
Before 2010 the Australian Tax Office did not allow SMSFs to purchase trauma insurance. Although the rules have now changed, you should take expert advice if you are considering buying your trauma cover through your SMSF.
The tax office does allow superfunds to distribute money early in some circumstances, including if you are temporarily or permanently unable to work for medical reasons. For TPD and income protection insurance this generally means that you will able to access your money at the time of the claim.
Trauma insurance is different, because a claim is not linked to your ability to work. If you suffer any of the injuries or illnesses listed in the policy you can make a claim, even if your life quickly returns to normal. In many cases trauma events will cause at least a period of disability so there may be an opportunity access the funds from your SMSF, but there's a real risk that you wouldn't.
For impartial, expert advice on choosing the right insurance for your SMSF, and structuring it correctly, contact us today.