What is trauma insurance and how does a recent change in regulations affect your Self Managed Super Fund (SMSF)?
Trauma insurance is a form of cover that pays a lump sum if the insured receives a diagnosis of any of the critical injuries or illnesses specifically mentioned in the policy. Conditions most commonly covered are coronary bypass, heart attack, stroke or cancer. The lump sum is paid out whether or not the insured is unable to work; the diagnosis is the only factor.
Ever since the Superannuation Industry Supervision Act (SISA) in 1993, trustees of SMSFs have been allowed to purchase trauma cover for any member of the fund as long as a long list of requirements were met. However, this situation changed on 1 July 2014. Members who join an SMSF after 1 July 2014 are no longer eligible to have the SMSF purchase trauma insurance for them.
The SMSF can only insure a member for the following conditions
- Terminal Medical Condition
- Temporary Incapacity (In which the member is temporarily unable to work)
- Permanent Incapacity (In which the member is permanently unable to work)
What to Do
For those who were a member of a fund before 1 July 2014, your SMSF can continue to provide you with trauma cover. In other words, you will be “grandfathered in” as long as you stay in the same SMSF. If you joined or will be joining an SMSF on or after 1 July 2014, the fund will not be able to provide you with trauma cover.
Call the Perth professionals at Approved Financial Planners to learn more about the effects of the new regulation. The information here is general in nature and we can’t guarantee that it is relevant to your unique and personal situation.
We will be glad to provide an obligation-free consultation. We can gather your relevant information and help formulate a plan specifically for your needs.
Call us today: 08 6462 0888.