New regulations will be implemented from 1 July 2014, prohibiting someone from applying for insurance inside superannuation that does not meet the superannuation (SIS) conditions of release.
What does this mean? Going forward you will not be able to fund Trauma policies, Own Occupation TPD policies, or certain income protection policies inside superannuation. To claim on these types of policies you do not have to prove permanent or temporary incapacity. Existing policies will be grandfathered.
The changes will make it more complicated for SMSF trustees to accurately document the consideration for insurance in their investment strategy, especially when a type of cross insurance is involved.
Another pitfall SMSF DIY trustees must also be aware of is when they rollover money from existing retail, corporate or industry super funds into an SMSF that they could lose the insurance benefits in their existing super fund. Some super funds require a minimum balance of $20,000 for insurance cover to remain open. Other super funds require employer contributions to be paid into the super fund to retain the disability (TPD) benefits. This is why before implementing this transaction you should obtain professional advice.
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