Life insurance requirements for SMSF members 

When preparing an investment strategy, SMSF trustees are legally required to consider insurance cover for members of the fund. The SMSF investment strategy needs to discuss the life insurance needs of each member and how they have been met by the SMSF or why insurance cover for the members was not considered appropriate.

SMSF members can take out life insurance policies for death, total and permanent disability (any occupation definition only) and salary continuation (income protection) inside their SMSF. 

Holding insurance cover inside superannuation may be more tax effective compared to ordinary policies held outside of super and may also assist with cash flow management. However, there are also several drawbacks that any member of a super fund needs to be aware of, particularly the need to satisfy a condition of release and whether any benefit payouts may be subject to tax.

Insurance provisions should be considered when a borrowing arrangement is established in an SMSF. It is a requirement of the fund to have adequate provisions in place to provide liquidity to repay all claims in the event of the death or disablement of the members of the fund.