Important information:

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1 SMSF insurance

2 Important information: This document has been prepared by CommInsure, a registered business name of The Colonial Mutual Life Assurance Society Limited ABN AFSL (CMLA). The information is of a general nature only and is for adviser use only. It is not to be distributed in full or in part to members of the public as it has been prepared without considering individual objectives, financial situation or needs. The information is based on present taxation laws, superannuation laws, social security laws, rulings and their interpretation as at the issue date of this document/brochure. The case studies are for illustrative purposes only and should not be considered as specific financial advice. The CommInsure Protection Combined Product Disclosure Statement (PDS) and Policy is available by calling or from commbank.com.au and should be considered in making any decision about these products. CMLA is a wholly owned but non-guaranteed subsidiary of the Commonwealth Bank of Australia ABN AFSL

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4 Definition: self-managed super fund Self-managed super funds (SMSFs) by definition: Complying super fund that is regulated by the ATO Has less than five members Each individual trustee (or director if a corporate trustee) of the fund is a fund member Each member of the fund is a trustee (or a director if a corporate trustee) No member of the fund is an employee of another member of the fund, unless those members are related; and No trustee of the fund receives remuneration for his or her services as a trustee

5 The numbers A growing opportunity and market 509,000 SMSFs in Australia 964,000 members 1.6 trillion total super assets And SMSFs are predicted to continue to grow in popularity. 5 Source: ATO, SMSF: A Statistical Overview, December 2013

6 Insurance in SMSFs Since August 2012, the trustee of an SMSF is required to consider insurance cover for members of the fund. The trustee of the entity must formulate, review regularly and give effect to whether the trustees of the fund should hold a contract of insurance that provides insurance cover for one or more members of the fund 1. As of 1 July 2014, changes took place which impacted SMSF trustees. All new insurances issued must be consistent with the SIS conditions of release 2. This has changed the design of benefits like TPD and Income Protection offered in super. 1 Superannuation Industry (supervision) regulations 1994 Reg 4.09 (2)(e) 2 The relevant SIS conditions of release most applicable to insurance in super are: death, terminal illness, permanent incapacity and temporary incapacity.

7 What do these changes mean for trustees? It may no longer be appropriate for insurance cover designed to be held outside super to be issued to SMSFs, for example Trauma cover, TPD own occupation and income protection extras. Your opportunity These changes give you the ideal opportunity to engage with your SMSF clients, review their investment strategy and ensure their SMSF fulfils ls all regulatory requirements as well as their financial ncial goals.

8 Are you making the most of the growing SMSF opportunity? Less than 13% of SMSF members have insurance 1, that s around 800,000 SMSF members without insurance! If these 800,000 members were shared around the 5,000 risk advisers in Australia potential business is estimated at $4,000,000 each year per risk adviser 2. 1 ATO Self managed super fund statistical report September 2012; Super System Review. 2 Assuming 5,000 risk writers in Australia with a conservative average premium of $2,000 per member.

9 Penalties The recommendation and the client s decision to adopt or decline cover, must be reviewed annually and documented in the investment strategy or in the minutes of a trustee meeting. Penalties exist for non-compliant funds. What happens if a trustee fails to address insurance in their SMSF? A person who intentionally or recklessly contravenes this standard is guilty of an offence punishable on conviction by a fine not exceeding 100 penalty units. (Approximately $17,000 for each trustee) (Section 34 SIS Act; Section 4AA Crimes Act 1911) A person who suffers loss or damage may recover... against that other person or against any person involved in the contravention (Section 55(3) SIS Act)

10 Sample SMSF insurance strategy The Trustees will consider whether they should hold a contract of insurance that provides insurance cover in respect of one or more members of the fund. In meeting this requirement, the Trustees have regard to the personal circumstances of the members of the fund and other legislative requirements. In considering insurance the Trustees examine the impact on the provision of enhanced death, permanent or temporary incapacity benefits for members, or the provision of liquidity and ability to extinguish liabilities. Refer the attached appendix in respect of insurance policies put in place.

11 Sample SMSF insurance strategy Appendix 1: Insurance policies The trustees of the fund have determined that it is appropriate to have insurance policies in place for a variety of risk protection objectives. Please tick the boxes based on types of cover in place: A policy of insurance on the life of a member designed to result in a direct increase of the Superannuation Death Benefit paid for the member by the amount of cover purchased. A policy of insurance on the life of a member designed to result in an increase of the Permanent Incapacity Benefit paid by the amount of cover purchased. It was noted that depending on the insurer s definition of Total & Permanent Disability the premium paid may not result in a full tax deduction to the Fund. A policy of insurance for a member designed to result in the Fund s capacity to pay an income stream benefit as the result of temporary incapacity of the member. A policy of insurance on the life of a member designed to result in a capital payment to the Fund. This payment will enable the Fund to extinguish a loan established under a limited recourse borrowing arrangement asset acquisition. A policy of insurance on the life of a member designed to result in a capital payment to the Fund. This payment will enable the Fund to provide liquidity such that the Fund may make an anti detriment payment as part of the Superannuation Death Benefit in respect of the member. A policy of insurance on the life of a member designed to result in a capital payment to the Fund. This payment will enable the Fund to provide liquidity such that the Fund may not be obliged to dispose of an asset to pay the Superannuation Death Benefit in respect of the member.

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13 Benefits of insurance in SMSF $ Cash flow premiums are paid by the super fund with money it already holds, freeing up after-tax income. Tax effectiveness Generally, the insurance premiums are tax deductible to the SMSF providing an effective 15% tax saving which is a significant reduction in the annual premium. Life insurance and Total & Permanent Disability insurance is not tax deductible in your personal name. Clear debt As the prevalence of borrowing inside SMSFs increases, a fund's ability to meet its loan repayments is becoming a far more significant consideration. Pay out benefits to ease financial stress when needed most.

14 Insurance within SMSFs Life Insurance Company Issues a life insurance policy to SMSF Following a claim, insurance proceeds paid to the SMSF SMSF owns the policy and makes premium payments from funds assets SMSF SMSF will pay proceeds to the member or beneficiary(s) as and when appropriate Member contributions are typically made to meet the premium payments Member / Beneficiaries

15 SMSF insurance can be complex Some of the things trustees need to know include: what cover is needed the right level of cover the most appropriate structure to house the policy the most cost effective way of funding the insurance At CommInsure we re leading the way with our new purpose-built SMSF insurance plan. The SMSF Plan presents a perfect opportunity for you to re-engage with your SMSF clients.

16 CommInsure s purpose-built SMSF plan Designed to make your job easier. How? 1. The SMSF Plan has been designed with a view to provide SIS-compliant insurance cover to SMSFs - SMSF trustees can have peace of mind that their members are more likely to meet a SIS Act condition of release and receive the benefit. 2. Only one quote is required for most scenarios, and can be done using CALQ. 3. It s flexible the SMSF Plan can be tailored to suit all members utilising CommInsure s Split TPD and Flexi-linking. 4. The SMSF Plan is potentially cost and tax effective not only does insurance inside super free up day to day income, but premiums paid by a SMSF may be tax deductible to the fund.

17 CommInsure SMSF Plan Core cover options* Life Care TPD^ Income protection Essential Cover What can I add? TPD Income protection Essential Cover TDP * These can be taken as stand-alone cover or as the combination/s shown. Accidental Death ^ TPD can be held on a stand-alone basis within the SMSF Plan.

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19 Taking hold of the opportunity Step 1 Re-engage with your existing SMSF clients and consult with them regarding the recent SIS changes using the client lead letter. These steps will assist you in taking hold of your $4,000,000 worth of potential business. Step 2 Step 3 Approach referral sources such as accountants to see how you can tap into their existing SMSF client base and look at their insurance opportunities using the referral lead letter. Consider an appropriate insurance strategy to benefit each of the SMSF members using the SMSF insurance strategy flyer. Step 4 Implement the decision with the help of a CommInsure BDM.

20 Tools Client lead letter Re-engage with your current SMSF clients Referral lead letter Generate appointments with your referral sources Referral tools Powerpoint presentation for your referrals SMSF insurance strategy flyer CommInsure support Insurance Tech Team Dealer group presentations available. Speak with your CommInsure BDM

21 Tool for your use: lead letters Referral lead letter When you consider that 72 per cent of trustees consulted with a tax accountant/agent and 42 per cent consulted with a financial adviser*, accountants and advisers working together have a greater opportunity for revenue generation and ensuring clients fulfil SMSF requirements. Attached is a referral lead letter to help you in approaching referral sources such as accountants. SMSF client lead letter The vast majority of Australians are chronically underinsured when it comes to insuring their lives against the unexpected. With SMSF clients now being required to review their insurance needs, re-engage with your relevant clients using this client lead letter. * Source. Comparator presentation for WomenInSuper Sept 2011

22 Tool for your use: SMSF insurance strategy flyer Trustees must document consideration of insurance annually. When advising SMSF clients, consideration must be given to the: Existing insurance arrangements both inside and outside the fund The member s income, assets and liabilities The impact that the death or disability would have on their own / their beneficiaries standard of living Affordability of cover taking into account retirement goals Availability of cover given member s personal circumstances To assist in assessing the need for your client s SMSF to hold insurance, consider using the SMSF insurance strategy flyer with your clients to help with information gathering.

23 Tools for your use: Product summaries

24 Compelling reasons to say yes to insurance yes yes It doesn t matter how fantastic a person s investment strategy is, without protection of this investment it could be all for nothing. Research shows that 60% of families with dependent children do not have enough insurance to cover the household expenses for a year if the family bread winner were to die 1. Or the chance of falling seriously ill are higher than you probably think. Two in five males and one in four females will suffer a critical illness between the ages of 30 and Debunk the myths that insurance doesn t pay. In 2014, CommInsure paid more than $879 million in life and disability claims to customers and their families. That s almost $17 million every week. 3 1 IFSA/TNS Protection Gap research General Cologne Life Re Australia, CommInsure claims 2014, Retail and Group statistics combined

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