Insurance is one of the areas that can be overlooked in a self-managed super fund, yet it forms part of the responsibilities trustees must consider. Trustees are required to consider insurance for members as part of the fund’s Investment strategy and review those decisions regularly.

As members age, financial circumstances change and Superannuation rules evolve, insurance arrangements established years earlier may no longer align with current needs. Reviewing the structure before a claim or compliance issue arises can help trustees identify gaps and ensure the fund’s records remain current.

Why insurance sits at the heart of Trustee duties

Managing an SMSF involves both membership and trustee responsibilities. Members want protection that supports their families and financial circumstances, while trustees have legal obligations to manage the fund appropriately.

Trustees must formulate, review and implement an investment strategy for the fund. Superannuation regulations require that this strategy considers whether insurance should be held for each member.

This does not mean every SMSF must hold insurance. Instead, trustees need to consider the issue, document their decision and review it as circumstances change.

An investment strategy that does not address insurance considerations, or refers to policies that are no longer held, may create questions during an SMSF audit.

Because insurance affects both member protection and fund management responsibilities, it should receive periodic attention alongside investments, Liquidity and other strategic decisions.

What can be held inside super, and what cannot

The types of insurance that can generally be held through superannuation have been restricted since 1 July 2014.

Policies held inside an SMSF must generally align with a condition of release under superannuation law. This can include:

  • life insurance;
  • any-occupation total and permanent disability (TPD) insurance;
  • income protection insurance.

Some types of personal insurance, including own-occupation TPD and trauma or critical illness cover, generally cannot be held inside super for new policies.

This distinction is important because some members may assume their SMSF provides all forms of protection they require. Where certain cover types cannot be held inside super, members may need to arrange them personally outside the fund.

The ownership structure matters because insurance proceeds paid into super are subject to superannuation rules when benefits are distributed.

Premiums, tax and the flow of money

When insurance is held inside an SMSF, premiums are paid from fund resources, including contributions or the existing fund balance. In some circumstances, premiums may be deductible to the fund.

This can affect Cash Flow because premiums are not paid directly from a member’s personal income.

However, there is also a trade-off. Contributions used to fund insurance premiums still count towards contribution caps.

For 2026–27, the concessional contributions cap is $32,500 and the non-concessional contributions cap is $130,000. Members approaching these limits should consider how insurance premiums affect available contribution capacity.

Personal insurance arrangements work differently. Premiums are generally paid using after-tax money, while ownership and control of the policy remain outside the superannuation system.

Neither structure is automatically suitable for every member. The appropriate arrangement depends on personal circumstances, financial objectives and tax considerations.

What trustees should check

A review of SMSF insurance arrangements can begin with the fund’s investment strategy.

Trustees should consider whether the strategy addresses insurance for each member and whether the documented position matches the policies currently held.

The next consideration is whether existing cover remains appropriate. Insurance needs can change significantly over time as members experience changes in income, family responsibilities, debts and retirement plans.

Trustees should also review ownership and beneficiary arrangements. Where insurance is held inside the SMSF, proceeds are generally paid to the fund and distributed according to superannuation rules, the trust deed and any valid death benefit arrangements.

Other practical checks include:

  • confirming premiums are paid on time;
  • ensuring policies have not unintentionally lapsed;
  • reviewing whether premiums are affecting fund liquidity;
  • maintaining records of insurance decisions and reviews.

A hypothetical example

Consider a hypothetical two-member SMSF operated by a couple in their late 40s.

The fund holds Life insurance and any-occupation TPD cover arranged when the SMSF was established. One member believes the fund also provides trauma cover, but that type of policy was not held through super and was never arranged separately.

A review of the insurance structure identifies the gap, allowing the trustees to consider their Options based on their circumstances.

This example is hypothetical and is intended only to demonstrate why reviewing insurance arrangements can identify issues before they become problems.

Common mistakes to avoid

Several insurance-related issues commonly arise for SMSF trustees.

One mistake is having an investment strategy that does not address insurance considerations. Another is assuming that all types of personal insurance can be held inside super.

Trustees may also overlook the impact of premiums on fund balances, particularly where insurance costs continue for many years.

Another issue is failing to review cover after major life changes, such as changes in family circumstances, Debt levels or retirement plans.

Regular reviews can help trustees understand whether current arrangements continue to match both member needs and fund obligations.

What to watch next

Insurance arrangements are not subject to a specific announced change, but the broader superannuation environment continues to evolve.

Indexed contribution caps affect how premium payments interact with available contribution space, while increased focus on SMSF governance and record keeping means documentation of trustee decisions remains important.

Trustees reviewing whether cover should be held inside or outside super may consider obtaining appropriate financial advice, particularly where tax or estate planning issues are involved.

Key Insights

Insurance within an SMSF is both a member protection consideration and a trustee responsibility.

The rules limit which types of insurance can be held inside super, while premium funding can affect contribution planning and fund liquidity.

A documented review of insurance adequacy, ownership, cost and compliance requirements can help trustees ensure their arrangements continue to reflect changing circumstances.