Clients who set up self-managed super funds (SMSFs) risk cancelling their existing insurance cover with their previous super fund, says Pitcher Partners director of superannuation Brad Twentyman.
He welcomed the recently tabled Superannuation Industry (Supervision) Amendment Regulations 2012 (No.2), which focuses on whether SMSFs have adequate insurance cover for members.
"Risk insurances aren't always on a person's radar, particularly when they set up their own SMSF – and they should be," Twentyman said.
Before switching over to a self-managed fund, clients should consider which options they will lose and what it will cost to replicate or retain cover at the required levels, he said.
"When you are 30 years old it's easy to get insurance, but when you are over 50 – when most people set up their own funds – insurers will be much more cautious in handing out cover," Twentyman said.
"Later in life, replicating a policy in a new super fund may require you to undertake medicals and your cover could be rejected or subject to exclusions," he added.
Holding insurance in super can be a good way to structure additional insurance, especially if a client has a young family or substantial debts, Twentyman said.
"Having insurance in your super fund may also reduce the likelihood of a forced sale of super fund assets on the death or disability of a member," he said.
In addition, super funds usually qualify for tax deductions for life and total and permanent disability (TPD) insurance premiums.
"Holding income protection in super does not offer additional tax advantages, however you may benefit from the ability to pay premiums from your super rather than from your personal cashflow," Twentyman said.
"Care must be taken to ensure the super fund is both the owner and beneficiary of any policy," he said.
