For some time, there has been a raging debate about whether insurance should be kept within Super or outside it. Those sticking to the ‘inside’ opinion vouch about the tax merits and also establish quite a valid point that if held inside Super, you cannot accidentally forget making the premium payments. Here are a few key points why insurance within Super must comply with SIS regulations.
Drawbacks of insurance within Super
Of course, the ‘outside’ side of the debaters propose a few key points, too, such as inadequate coverage, adverse impact to the fund (when premium is paid), and long-stretching legal processes (in case of death without BBN).
Changes since 1 July once SIS comes into effect
After 1 July, insurance inside Super is being met by certain restrictions and non-compliance is fraught with the risk of penalty. Just so you know, since the first day of this year’s second half, no policy is deemed compliant if held within Super without following the SIS regulation.
What SIS reads as a condition of release is limited to death, illness of terminal nature and incapacities; both temporary and permanent.
Dismal show of knowledge by SMSF members
Off the note, I need to ponder over a point here. It is a sorry statement on our financial acumen that 30% of SMSF members are completely unaware of the insurance policy sold with their Super. It is a MetLife survey and hence, redoubtable.
APRA and SPAA at loggerheads
As a sidenote, it is interesting to know that the Australian Prudential Regulation Authority (APRA) and the SMSF Professionals’ Association of Australia (SPAA) are at loggerheads, with the former recommending greater prudential regulation and the latter clearly believing that in an environment of low-level processing (like SMSF), such regulation is just not required.