Managing external life cover to avoid contribution mistakes
Financial experts warn that holding life insurance across multiple superannuation funds can lead to administrative errors and unintended tax consequences. Strategies to manage these policies include careful contribution monitoring or annual rollovers to avoid triggering excess contribution caps.
Why it matters
Proper management of superannuation life cover is essential for individuals to avoid unnecessary tax penalties and ensure their insurance remains active.
<span style="font-weight: 400;">Busoli said generally SMSF members hold their life insurance cover either in a legacy APRA fund or as a standalone policy issued through a life insurer’s superannuation division.</span>
<span style="font-weight: 400;">“Sometimes members have superannuation life cover in more than one fund. There may be valid reasons for this. Perhaps they transferred from an APRA fund to an SMSF and retained their APRA fund cover as their replacement cover would have been unavailable, or available at a substantially higher premium due to medical or occupational loadings,” Busoli said.</span>
<span style="font-weight: 400;">“Similar considerations may also have applied to an existing super life policy. Or maybe the reason is because it was just easier to leave things as is. There are administrative and, possibly, tax consequences that result from this scenario.”</span>
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