Before setting up an SMSF, it’s essential to be fully informed about the pros and cons of an SMSF structure. In this second instalment of our two-part series on the key differences between SMSFs and public offer funds, we look at some important issues relating to insurance and dispute resolution.
It’s possible to hold various types of insurance through your superannuation fund, including death, total and permanent disablement (TPD), and temporary incapacity. For many, using superannuation benefits to pay insurance premiums makes insurance more accessible and convenient.
While you can purchase insurance within an SMSF, large funds can generally offer cheaper premiums because of the group discounts these funds can access. Also, members of large funds are automatically accepted for a certain level of coverage without needing a medical examination or detailed personal information, which is more likely to be required for an SMSF-held policy. For these reasons, some SMSF members choose to keep a separate account in a public offer fund just to access the insurance.
If you’re an SMSF trustee, you’re in charge, so there are a few things to keep in mind:
As part of your SMSF’s investment strategy, you’re required to consider (and regularly review) whether the fund should hold insurance cover for its members.
Not all types of insurance, eg trauma policies, can be held in superannuation.
Be aware of the tax consequences of holding insurance in the fund, including the deductibility of premiums and how life insurance proceeds might affect the taxation of your death benefits.
If you’re a member of a public offer fund, it’s important to check on what you’re signed up for, and if you’re paying for duplicate policies across multiple accounts.
What happens when you’re not happy with the trustee of your fund? Members of public offer funds can complain to the Australian Financial Complaints Authority (AFCA), a free dispute resolution service that has the power to make binding decisions to resolve your matter.
However, SMSF trustees may only complain to AFCA about financial services problems with third parties (eg an insurance company), not about the decision or conduct of other SMSF trustees.
In these cases, the parties would need to go through the legal system to resolve the matter. It’s possible to set up the SMSF’s governing rules with dispute resolution procedures in advance.
Weighing up your super options? We can help you decide whether an SMSF can achieve your retirement goals.