When preparing your investment strategy you're required to consider whether to hold insurance cover for each member of your SMSF. Your SMSF can generally provide insurance for a member for an event that is consistent with one of these conditions of release of the member's super:
- Terminal medical condition
- Permanent incapacity (causing the member to permanently cease working)
- Temporary incapacity (causing the member to temporarily cease working)
Trauma insurance typically pays a lump sum if the insured person is diagnosed with a critical illness or injury as specified in the policy, such as cancer, stroke, coronary bypass or heart attack. The lump sum is paid regardless of whether the insured person ceases work or becomes permanently disabled. This is not consistent with one of the conditions of release of the member's super, so SMSFs generally cannot provide trauma insurance for their members. However, SMSFs can continue to provide trauma insurance benefits to a member if it is a continuation of insurance benefits for that member that existed before 1 July 2014. In this situation the member can vary the level of the cover, and any associated premiums, after 1 July 2014. To meet the sole purpose test, the following conditions must be met:
- Any benefits payable under the policy must be paid to a trustee of the SMSF
- Those benefits will become part of the assets of the SMSF at least until such time as the relevant member satisfies a condition of release
- The policy was not acquired to secure some other benefit for another person, such as a member or member's relative.