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What Are The Benefits Of Holding Cover Inside An SMSF?

3 min read
income protection smsf

A fund, rather than an individual policy, means you are insured under a trust. This means that your trauma insurance policy is guaranteed 100% no matter what happens to you or your financial situation in life. Your family is then eligible for up to 50% of any investment earnings accumulated by your SMSF account over time without paying taxes on it at all. For example, let’s say your fund earns 10%, which would accumulate $100,000 in profits for you and your loved ones at retirement. The downside is that strict rules surround how much you can contribute to an income protection SMSF per year before being hit with punitive tax penalties of up to 75%.

Consider investing in trauma insurance. If your SMSF is holding cover or considering an SMSF, likely, you are also seeking financial security. To increase your chances of surviving a life-threatening illness or accident, look into trauma insurance for yourself and your family. Trauma cover may help protect you from higher premiums on private health insurance, additional costs associated with treating your illness or injury, and income replacement if you can no longer work. It also includes assistance for your loved ones if they’re caring for you during recovery. Here are the benefits!

Premiums Are Tax-Deductible

Income protection insurance is generally tax-deductible, helping to reduce your current year’s taxable income. In most cases, you can claim a deduction for premiums paid for all years, even if you have not claimed any other claims from that insurer. Many people do not realise that they can claim tax deductions for premiums paid in previous years even though they did not claim at that time. This can help reduce your overall tax payable and also help you get back some of what you have already paid in premiums over time.

The Australian Tax Office considers premiums paid for income protection policies as part of your medical expenses, including premiums paid for accident, sickness and hospitalization insurance products. But unlike your health insurance premium, which is usually deducted from your paycheck automatically by your employer, you have to pay for income protection upfront with after-tax dollars. Income protection premiums are payable monthly or annually, depending on how you choose to pay. A bonus is that if you choose a monthly option, most providers will rebate up to 10% of your yearly premium payment if no claims were made over that period.

Premiums Are Paid With Members’ Contributions

Although income protection (IP) is not mandatory, it can provide valuable peace of mind. It provides you with a fixed sum each month if you are unable to work due to illness or injury and also pays out an additional lump sum if you die while earning a salary. For young members in lower-paid jobs who earn up to $3,000 per month, you pay Premiums entirely. This includes your share of Employer contributions.

Some plans allow employers to contribute too. These payments are not guaranteed, so if your employer falls on hard times and cannot make payments, you may be left without income protection. Your insurer may help pay some of your benefits if your employer goes into liquidation, but you should check that they will be liable in these circumstances before taking out cover. A business that has gone bust is not legally obliged to continue paying premiums on any insurance it has taken out on its employees’ behalf. Therefore, there is no guarantee that an insurer will accept a claim from an employee for any benefits owed by his or her ex-employer.

Super policies usually include some level of income protection, but it’s worth getting a quote on the additional cover, especially if you have dependents. As your super balance increases, so does your policy income protection smsf premium.

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