While there is no existing law that restricts a superannuation fund from owning a trauma insurance policy, there are three key reasons why placing a client’s trauma policy inside a superannuation package is not worth the effort, according to CommInsure’s Executive Manager, Business Growth Services, Jeffrey Scott.
Responding to questions raised by some advisers about the absence of trauma insurance within CommInsure’s superannuation offering, Mr Scott sets out in CommInsure’s most recent Did You Know release the reasons supporting this position:
Taxation of Trauma Premiums Within Superannuation
Mr Scott comments, “Unlike death, TPD and salary continuance cover, trauma premiums are not tax deductible to a superannuation fund trustee… This means that concessional (deductible) contributions to fund trauma premiums could be subject to contributions tax in the fund [which] may result in higher premiums within superannuation versus a similar trauma policy outside of superannuation.”
The Sole Purpose Test
A recent legislative ruling that states trauma insurance does not breach the sole purpose test applying to the provision of superannuation benefits, provided certain conditions are met.
But Mr Scott adds that ambiguity exists as to the interpretation of these conditions and their execution. For example, a super fund trustee may transfer what is considered an unreasonable amount of funds to pay for trauma insurance premiums, which may breach the sole purpose test and expose the fund to ‘non-complying’ status, which has significant taxation implications.
Accessing Trauma Benefits From Superannuation
According to Mr Scott, the key point in this case is that suffering a trauma condition is not necessarily a condition of release in relation to total and permananet incapacity.
“It may therefore be inappropriate for clients to fund trauma cover via superannuation where they require immediate access to such benefits following a successful claim if they have not already satisfied a condition of release,” says Mr Scott.
While the above arguments present a solid case to place trauma insurance policies outside the superannuation environment, they also become effectively moot points if, as Mr Scott points out, the recommendation from the Super System (Cooper) Review is adopted, which calls for all trauma insurance to be banned from being placed within super and that any existing policies should be phased out.
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