There’s a whole new life after work. And you’ve decided to prepare for it by investing your savings in a self-managed super fund (SMSF). Smart thinking! There are lots of advantages in doing that, compared with investing in traditional super funds. You’ve probably already weighed up the pros and cons. So far, so good.
But imagine if there were a big gap in your plans … something you’ve missed?
One thing that’s causing a lot of concern at the moment is the number of people in SMSFs who are leaving themselves in danger, by being under-insured, or completely uninsured.
Government* and industry figures show that only 13-15% of SMSF members have insurance. That means that about 6 out of every 7 people in self-managed funds have no insurance at all. That’s a huge gap!
Add to that the number of people who are under-insured – with insufficient cover to protect their assets – and the gap widens…
So where does that leave you?
A good question.
The answer is that, when it comes to insurance, you could be pretty much on your own. While larger funds often arrange automatic death and permanent disability cover for their members, this is not the case for self-managed funds. As a member of an SMSF, you are also a trustee and therefore have the responsibility for decisions connected with insurance. The regulations say that you are obliged to “regularly review the investment strategy of the fund”, which includes an assessment of what level of cover, if any, is right for you and any other members of your fund.
So, to comply with the regulations:
• You have to consider whether or not to take out insurance.
• You have to keep some record of how you came to your decision, but
• You don’t have to have insurance.
Insurance might not be compulsory, but is it wise not to have it?
Another good question.
Insurance is important to protect your investment, and your family’s future, in the event of death or disability, when contributions suddenly stop. Without insurance, your funds might be at risk, and the risk increases if your SMSF has been used to raise a loan, for example, to buy investment property. Even if you are insured, there could be a gap between your cover and your needs. There might be other factors that you should be aware of, depending on your age and circumstances.
It can be a complicated business and you can’t be expected to be an expert in every aspect.
What to do
The most important message here is to get some expert help. Your accountant is not likely to be able to offer advice in this area. The best thing to do is to talk to a professional adviser, who will
• help you to look closely at your situation and your insurance needs
• navigate the regulations and compliance requirements connected with insurance for SMSF members, and
• offer the best ‘no-gap’ solution for your circumstances.
Protecting your super investment is protecting your future.
* the Cooper Report (2010)