SMSF insurance reference
Insurance inside an SMSF: life, TPD and income protection
By easySMSF, SMSF Specialist Team · Updated
What each cover type does, the rules that apply when a fund owns the policy, and the steps to put cover in place through a licensed financial adviser. easySMSF handles the accounting side — we do not sell or advise on insurance.
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The trustee's duty: consider, not necessarily hold
Super law does not force an SMSF to hold insurance. What it requires (SIS Reg 4.09) is that the fund's investment strategy documents whether the trustees have considered the insurance needs of members. The obligation is the documented consideration — a strategy that records 'no cover, reasons noted' can satisfy it.
When a fund does hold a policy, ownership and payment rules are strict: the trustee of the fund owns the policy, the fund pays the premium from its own bank account, and any payout flows through the fund to the member or their beneficiaries as a superannuation benefit.
easySMSF is an accounting and administration service. It does not hold an Australian Financial Services Licence and does not advise on, arrange or issue insurance. Policies are arranged through an independent adviser who holds an AFS licence; once a policy exists, easySMSF handles premiums, deductibility and the audit trail.
- SIS Reg 4.09: the investment strategy must record whether members' insurance needs were considered
- The fund's trustee owns the policy; the fund pays the premium from its bank account
- Life and TPD premiums are generally tax-deductible to the fund
- New own-occupation TPD policies cannot be issued inside super (since 1 July 2014)
- easySMSF does not advise on or arrange insurance — an independent AFS-licensed adviser does that
The three cover types, inside super
Life (death) cover
Pays a lump sum to the fund on the death or terminal illness of the insured member. The fund then pays it out as a death benefit under the fund's trust deed and any binding death benefit nomination.
Rules when the fund owns it
- Policy must be owned by the trustee of the fund, for the member — not owned personally and 'noted' to the fund.
- Premiums paid from the fund's bank account are generally deductible to the fund.
- The payout flows into the member's account and is taxed under the super death benefit rules, which depend on who receives it.
- The fund's deed and any binding death benefit nomination decide where the benefit goes — the nomination page covers how those work.
Common traps
- Paying the premium from a member's personal account and trying to reimburse it later — the fund must pay the insurer directly.
- A policy owner shown as the member personally, which breaks the super ownership requirement.
- No death benefit nomination in place, leaving the trustee to decide the beneficiary.
Total and permanent disablement (TPD)
Pays a lump sum if the insured member meets the policy's definition of permanent incapacity. Inside super, policies issued since 1 July 2014 must use the 'any occupation' style definition that matches the SIS condition of release.
Rules when the fund owns it
- The policy definition must align with the permanent incapacity condition of release, or a payout can be trapped inside the fund.
- Premiums are generally deductible to the fund; the deductible proportion can depend on the policy definitions, which the insurer certifies.
- A TPD benefit paid before preservation age can receive tax-free uplift under the disability super benefit rules.
Common traps
- Holding an 'own occupation' policy issued after 1 July 2014 inside super — the payout may not be payable to the member even when the insurer pays the fund.
- Assuming an outside-super policy's definition applies to a fund-owned policy.
- Not documenting in the investment strategy why TPD cover was or was not taken up.
Income protection (temporary incapacity)
Pays a monthly benefit if the insured member is temporarily unable to work. Inside super, the policy must only provide benefits that match the temporary incapacity condition of release.
Rules when the fund owns it
- Premiums are generally deductible to the fund.
- Benefits are paid to the fund and then to the member as a temporary incapacity benefit, taxed as income.
- Benefit periods, waiting periods and ancillary benefits (like rehabilitation) must fit the super definitions.
Common traps
- Policies with extras that go beyond temporary incapacity — for example redundancy cover — which cannot be held inside super.
- Split policies where part of the premium belongs to the fund and part to the member, misposted entirely to the fund.
- Treating the monthly benefit as a pension payment rather than a temporary incapacity benefit in the fund's accounts.
How cover is put in place
easySMSF is not licensed to give financial product advice, so the advice steps below are carried out by an independent adviser holding an AFS licence. easySMSF's role begins at the accounting steps: recording the consideration in the strategy, paying premiums from the fund, and keeping the audit file complete.
1. Record the consideration in the investment strategy
SIS Reg 4.09 requires the fund's investment strategy to state whether the trustees have considered insurance for members. This happens whether or not any policy is taken out. easySMSF's strategy review process includes this item each year.
2. Speak with a licensed financial adviser
Choosing cover is a personal decision that turns on health, occupation, income and existing policies. easySMSF does not hold an AFS licence and does not advise on or arrange insurance. Where a member asks, easySMSF can provide the contact details of an independent adviser who holds an AFS licence; any advice relationship is directly between the member and that adviser.
3. Adviser issues a Statement of Advice
Where the adviser provides personal advice, they document it in a Statement of Advice covering the cover types, amounts, ownership structure and premiums, along with the Product Disclosure Statement for each policy.
4. Application, underwriting and policy issue
The insurer assesses the application (underwriting), which can involve health and financial questions. The policy is issued with the fund's trustee as the policy owner and the member as the life insured.
5. Fund pays the premium and records it
Premiums are paid from the fund's bank account. easySMSF codes them in the fund's accounts, applies the tax deduction where it is available, and includes the policy details in the annual audit file.
6. Review annually alongside the strategy
Cover amounts, occupations and fund balances change. The insurance consideration is revisited each year when the investment strategy is reviewed, and any policy changes flow through the same licensed-adviser channel.
What easySMSF does — and does not do
easySMSF handles
- The insurance item in the fund's investment strategy review
- Premium payments from the fund's bank account, correctly coded
- Tax deduction treatment in the annual return
- Policy records in the year-end audit file
- Referral to an independent AFS-licensed adviser on request
The licensed adviser handles
- Deciding whether cover is appropriate for a member
- Selecting insurers, cover types and amounts
- The Statement of Advice and Product Disclosure Statements
- Applications, underwriting and policy issue
- Claims support
General advice warning
Figures shown are illustrative only and based on the inputs and assumptions you provide. They are general information, not personal financial product advice. Consider your objectives, financial situation and needs, and seek personal advice from a licensed financial adviser before acting. easySMSF does not hold an Australian Financial Services Licence (AFSL).
Related reading: SMSF investment strategy, binding death benefit nominations and the SMSF learning hub.
Frequently asked questions
Questions about how insurance is recorded in your fund?
Send an enquiry and our accounting team will explain how premiums, deductions and audit records are handled.
General advice warning
Figures shown are illustrative only and based on the inputs and assumptions you provide. They are general information, not personal financial product advice. Consider your objectives, financial situation and needs, and seek personal advice from a licensed financial adviser before acting. easySMSF does not hold an Australian Financial Services Licence (AFSL).