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Insurance ownership concerns for SMSF trustees
There are a range of insurance issues that self-managed superannuation fund (SMSF) trustees need to be mindful of, with policy holder ownership having the potential to cause compliance issues, according to SMSF administrators Multiport.
"The key element is to ensure the fund is the real owner and beneficiary, that's quite crucial," said Multiport's technical services director, Philip La Greca.
"It's not just a case of the fund paying the premium, the fund has to be the policy owner."
Because of the asset transfer rules, trustees can't simply transfer a policy into a fund, but trustees who don't receive the proper advice may think they can use the fund to pay the premium.
"If I've got an insurance policy and I want to transfer it into my super, I can't just transfer it, I have to get a whole new policy written - even though it's got no cash value," La Greca said.
"It's something that can slip through the loop, [trustees] put their name because they're the trustee, [but] the super fund needs to be clearly identified on the documentation as the owner."
Other issues to consider with having insurance inside SMSFs include the tax deductibility of premiums, the tax treatment of the proceeds and the ability to withdraw the amounts from the super fund, according to Multiport.
As with any insurance policy, the biggest issues can still be getting the right amount of cover in place, but this is more crucial for SMSF trustees because there is no safety net. While a large industry or retail fund will have a default insurer and default level of cover, in a SMSF the onus is on the trustee to make sure all the necessary definitions are correct, La Greca said.
AUTHOR
Mike Taylor
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