Lack of life insurance threatens SMSFs

Hundreds of thousands of Australians managing their own superannuation continue to risk their retirement nest-eggs through a lack of insurance.

This is despite legislation that was introduced late last year in response to the Cooper Review which found that fewer than 13 per cent of the almost 500,000 Self Managed Super Funds (SMSFs) had insurance.

The legislation requires Trustees of SMSFs to indicate that they’ve considered life insurance for members of the fund.

But according to Senior Advisor at William Buck, Sam Kitchen, many clients continue to overlook insurance either through a lack of understanding or lack of interest.

“We have a situation where people are running their own successful investment strategy and suddenly they’re being asked to consider insurance,” he said.

“In practice, most clients we see don’t have the desire to learn about insurance. They’ll talk about their dividend yield on shares, but I don’t hear them talking about permanent disability.

“One of the issues is that in most cases, people who set-up SMSFs are financially astute and motivated individuals who have carefully planned their investments and many feel that they have no requirement for insurance.

“But just because they’re educated investors, that doesn’t mean they’re going to be protected if the unexpected happens.”

Mr Kitchen said many clients established a SMSF by ‘rolling-over’ from a previous super fund, without any regard to their industry or corporate super funds that may have cover without medicals or wholesale premiums.

“We had a client with three children and a large mortgage who was about to roll-out of his current super to establish a property within his SMSF,” he said.

“The client didn’t even know what cover was in his previous fund. Fortunately, we were able to give him advice about life insurance within his SMSF as just month later he was surfing and damaged his back badly.”

Mr Kitchen said the legislation was also creating a lot of unintended consequences, such as leading some to consider insurance when it’s of no benefit to them.

“I was speaking at a conference recently when I was asked by an 82-year old about taking out a policy within his SMSF,” he said.

“This would have cost the pensioner tens of thousands of dollars a year. Forcing a pensioner without dependents to pay for insurance is not in the spirit of the legislation. Thankfully, we were able to set him straight.”

“Setting up and managing your own super-fund is extremely complex and we’d encourage anyone seeking to establish a SMSF to seek professional advice.”

According to the latest ATO figures, there are 478,263 SMSFs with 913,550 members in Australia.


Bryony Vandepeear

Marketing Manager

William Buck

Ph: (02) 8263 4000


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