What do I have to think about when I buy life insurance through my SMSF?

There are a number of things to think about when using your SMSF to buy life insurance:

• It’s vital that you get the right ownership structure for your insurance cover. SMSFs are not allowed to make payments on life insurance policies unless they are the legal owner of the policy – which means they are also the legal owner of any payments made under it. Some policies, such as trauma insurance, should generally not be owned by an SMSF.
• It is not possible to transfer your existing insurance into your SMSF. You will need to set up new policies to replace it. If your circumstances and health have changed since you set up your original policy this might not be to your advantage as cover could be more expensive or your policy may exclude additional medical conditions. Make sure you don’t cancel the old policy too soon and leave yourself unprotected during the transition! Expert advice is essential to ensure no mistakes are made in these circumstances so make sure you contact your accountant or financial advisor before making any moves to cancel existing policies.
• If you are buying life insurance through your SMSF to replace cover you held in your old retail or industry fund, remember that it could take some time to set up your new policies. Make sure that you don’t cancel your existing policies until your new arrangements are fully in place, which may mean you need to leave enough money in your old fund to pay the premiums for as long as necessary.
• The tax implications of using your SMSF to hold your life insurance cover will vary depending on your individual circumstances, including your tax arrangements and who will be the beneficiaries of your superfund. You’ll need to speak to your financial advisor for specific tax advice.