Why insurance is critical when SMSFs borrow to buy property

Many SMSFs that have used a Limited Recourse Borrowing Arrangement (LRBA) to acquire a property have little or no other assets in the fund. So when a member is disabled or dies, there is often not enough liquidity to pay a death or disability benefit and pay out the debt. To further complicate matters: It’s often not possible to pay death or disability benefits as an in specie transfer when the LRBA is still in place; only a limited range of beneficiaries are eligible to receive a death benefit as a pension; and if there are beneficiaries who are available and willing to receive a death benefit pension, the fund would still need enough liquidity to make the pension payments, as well as meet the loan interest. For more information, call David Reed on 8539 7233

Source: Damian Revell, SMSF Weekly 27/8/12

Insurance Changes for SMSF’s

From Cavendish SMSF Administration (14 August 2012), the SIS Act has now been changed to require, for the 2012-2013 financial year and beyond, that:

Trustees of self managed superannuation funds (SMSFs) consider insurance for their members as part of the fund’s investment strategy;

This does not mean that life insurance must be included in every Fund but it does mean that the Investment strategy should show that the matter has been appropriately considered.

There are specific SMSF life insurance products for trustees that are new and low cost. Call Veronia on 1300 78 55 77 to chat about their suitability for your fund.