Trustees duty to consider insurance cover in SMSF

SMSF trustees (who are also normally the members) must from the 2012-2013 financial year and onwards, consider whether the SMSF should hold insurance cover for the members, following an amendment to the superannuation regulations in order to discharge their obligations under the SIS Act.

Insurance should be considered when preparing the initial investment strategy for newly established trustees. For existing SMSF’s, this should form part of the regular investment strategy review. There is no rule on how often trustees need to consider the insurance needs of members, but you need to document this at least annually.

Trustees should consider whether fund members need total and permanent disability (TPD), life and income protection insurance. From 1 July 2014, you will not be able to take out new policies in super that don't align with the conditions of release in superannuation law. This includes TPD policies that pay a benefit if the member is unable to work again in their own occupation and insurance that pays a benefit if the member suffers a critical illness specified in the policy.

The following are some reasons why a member may not require insurance cover:

• the member has cover in another super fund;
• the member has cover outside of the super fund;
• the member has no need for cover as their debts are low and expenses are fully funded;
• the member does not believe in cover or is unwilling to pay the cost of the premium; and
• the member has been declined cover due to occupation or pre-existing conditions.

If no changes to insurances in the SMSF are required, the trustees should document the reason(s) why the decisions were made annually in the fund’s investment strategy or in the minutes of trustee meetings if no changes are made to the investment strategy. This will provide evidence the new requirement has been addressed.