The Problem with Life Insurance

The Problem with Life Insurance

Opportunities are being lost due to a general misunderstanding of the nuances of life insurance in SMSFs.

A deduction for term life insurance premiums is allowable, irrespective of whether the premium is paid from an accumulation or a pension interest. Clearly this is irrelevant if the fund is totally in pension mode however, where a portion of the fund is in accumulation, there is a tendency for administrators to wrongly assume that the premium must be debited against the accumulation account to obtain the tax deduction. This can have unfortunate repercussions.

The ATO consider the source of the premium payment as indicative of the account to which the benefit is to be paid. If the accumulation account is intended to be the recipient of the proceeds, then processing the payment in this way is not a cause for concern. If, however, it is intended that the proceeds be received by a reversionary pension beneficiary, and not form part of the beneficiary’s transfer balance account determination, the payment should be debited against the pension account.

Our strategic administration process assists SMSF advisers to deal with these issues.