The proposed changes by the Federal Government to reduce concessional superannuation contributions caps, as outlined in the May 2016 budget, has the potential to affect SMSF trustees who hold risk cover within their Fund.
The proposed reduction of the contributions cap to $25,000, down from $35,000, effectively means that there will only be $21,250 available for investment after 15% has been deducted for tax. If you hold life insurance within your Fund, then the cost of the premium further reduces the amount of funds available for investment.
According to special counsel Michael Hallinan from Townsends Business and Corporate Lawyers, “the issue was of most concern for people in their 50s and 60s, whose risk cover premiums would be quite high.”
The option to scale back insurance cover, or even terminate it, to allow more money to be invested by your Fund poses another set of problems. Hallinan points out that “the downside of course is that once you’re in the advanced stages of your life, having to be underwritten again can be quite a tremendous hurdle to get over.”
There is the potential for any new insurance outside of super to be difficult to obtain because of the medical underwriting requirements and so you need to carefully weigh up the benefits of maintaining insurance within your SMSF.
To be without insurance cover and suffer a life changing event would no doubt have a significant impact on you and your family. Before making any decisions about changing your insurance, we strongly recommend that you consult with us first.
You can also read more about the proposed changes to superannuation here.