I recently touched on the statutory deductibility of insurance premiums paid from an SMSF but sometimes things are not what they seem. It is not uncommon for APRA member accounts, when rolled into an SMSF, to leave a residual APRA fund balance to retain existing insurance cover in the APRA fund.
Under this scenario the member is now in two funds. It is not appropriate to arrange a regular payment from the SMSF to pay the insurance premium as this is not an insurance payment. Instead, it’s a rollover and must be processed via superstream. If it’s not, then it constitutes a member withdrawal so, in the majority of cases – given the age demographic of most members with life insurance – it represents illegal early access.
Though such “rollover” payments, drawn from an SMSF and tagged as life insurance premiums, should be picked up by the SMSF auditor, we still find that some SMSFs transferring to our service have these arrangements and need rectification.
Given the amount of bother involved in processing such a relatively small, regular, superstream payment, consideration should be given to satisfying the ongoing APRA fund contribution obligations from other sources.
On a related matter, members are prone to believe that the SMSF’s BDBN includes the life insurance payout from the APRA fund. Naturally it does not.
