SMSF income protection will generally pay up to 75% of your regular income if you are unable to work temporarily due to illness or injury. This protection is particularly important in the case of self-managed super funds, which are often run by self-employed people and small business owners, who would be particularly disadvantaged if they were unable to work.
Why? Income protection premiums are tax-deductible both inside and outside of super. This is because the ATO views income protection as a replacement for normal salary and wages.
The benefit of a tax deduction is limited to 15% inside super, and it can be up to 45% outside of super. Because income protection benefit payments are viewed as assessable income, they are also fully taxable, which may cancel out any benefits provided by a premium deduction.
Deciding whether to have income protection insurance inside an SMSF or outside as a standalone policy will depend on your individual circumstances and needs. We've mapped out a few situations where each product could work best for you:
You are nearing retirement and need to put as much as you can into your superannuation... You could opt for income protection outside of super so that your fund is not being wasted by premiums.
You have limited cash flow and just need basic income protection... Income cover through your SMSF may be all that you require.
You are looking for specific features such as cover for cancer or specific injuries... A retail income protection policy can provide such cover, unlike cover through your super.
An adviser can help you find cover from trusted life insurance brands.
