SMSF Insurance: What Trustees Should Know

Your self-managed super fund (SMSF) is more than a set of accounts – it’s part of the future you’re building for yourself and the people you care about. SMSF insurance is one way to help protect that future if life takes an unexpected turn.

Inside an SMSF, insurance works a little differently. The details matter. Every policy, payment and record needs to be set up and managed correctly to stay compliant. That’s where Andromedae comes in. We take care of the documentation and administration behind the scenes, so your fund stays protected and audit-ready – without the paperwork stress.

So, what does insurance inside an SMSF actually cover? And how does Andromedae make sure it’s handled the right way?

The role of insurance within an SMSF

Under superannuation law, every SMSF must consider insurance as part of its overall strategy. This doesn’t mean every fund needs to hold policies – it simply means that the topic has been reviewed and noted in the fund’s records.

At Andromedae, this happens naturally as part of your administration process. When we help set up or review your fund’s records, we make sure the insurance section is properly addressed and documented in line with ATO expectations.

It’s worth remembering that SMSF insurance works differently from a personal policy. Instead of paying benefits directly to an individual, any insurance proceeds are paid to the fund itself. The fund then distributes those benefits according to its trust deed and superannuation law.

Types of insurance an SMSF can hold

An SMSF can hold various types of insurance for its members. The most common are life insurance, total and permanent disability (TPD) insurance and income protection. Each serves its own purpose, but they all have one thing in common: the paperwork matters. 

Life insurance in SMSF

Life insurance inside an SMSF may pay a lump sum to the fund if a member passes away. The fund then uses that money to pay death benefits to the member’s nominated beneficiaries or estate, in accordance with the trust deed and superannuation law.

For many funds, this type of cover also helps with liquidity, meaning there’s enough cash available to meet obligations without needing to sell longer-term assets, like property, in a hurry.

Example:

If a member passes away unexpectedly and the SMSF receives the insurance payout. From there, Andromedae ensures that the payment is processed and recorded correctly, and that it appears properly in the fund’s documentation before being distributed to the intended recipients.

Total and Permanent Disability (TPD) insurance in SMSF

TPD insurance steps in when a member becomes permanently disabled and is unable to return to work. Like life insurance, the payment is deposited into the fund first, not directly to the member.

Once it’s received, the fund may release the amount if the member meets a condition of release – usually permanent incapacity under superannuation law. The finer details, like tax treatment or payment structure, can vary depending on the circumstances.

Example:

If a member suffers a serious injury and can no longer work, and the SMSF receives the insured amount. Andromedae records the transaction, ensures it remains compliant with the trust deed, and makes it easy for the auditor to follow during the reporting season.

Income protection SMSF insurance

Income protection within an SMSF can cover part of a member’s lost income if they’re unable to work for a period due to illness or injury.

In practice, the benefit is paid to the SMSF, which then distributes it to the member as income replacement, in accordance with the fund’s rules. Because these payments can impact contribution and tax reporting, accuracy in the records is crucial, and that’s something we continually monitor for every client.

Example:

If a member can’t work for several months after surgery, the income protection policy might provide regular monthly payments to the SMSF. Andromedae ensures those payments are correctly recorded and distributed under the trust deed, so everything stays clean and compliant.

How Andromedae manages insurance compliance

Each type of insurance plays a different role in protecting members and their families, but the common thread is accurate record-keeping. Andromedae handles that process for you, ensuring every premium, policy, and payout aligns with your fund’s compliance obligations.

That includes:

• Checking that all policies are held in the fund’s name.

• Recording premium payments correctly in the fund’s accounts.

• Storing policy schedules and documents securely.

• Ensuring your investment strategy reflects insurance considerations.

We also work closely with independent auditors each year to confirm that all insurance-related documentation meets ATO and Superannuation Industry (Supervision) Act standards.

The goal is simple – to keep your fund compliant without you needing to manage the paperwork.

Why clear SMSF insurance documentation matters

Insurance can provide a valuable safety net, but without the right paperwork, it can become an SMSF compliance headache. When insurance details are properly recorded and up to date, it means:

• Smooth annual audits.

• No missing pieces for ATO reporting.

• Confidence that your fund remains in good standing.

It’s the kind of background admin most trustees are happy to hand over, and it’s exactly where Andromedae excels.

SMSF insurance and estate planning

Insurance can also support estate planning within an SMSF. If a member passes away, the fund may use an SMSF insurance payout to meet its obligation to pay a death benefit to nominated beneficiaries.

Andromedae ensures that your trust deed, member records, and binding death benefit nominations all align, so benefits are distributed efficiently and according to the rules of the fund. It’s quiet protection that helps families when they need it most.

Staying compliant with confidence

At Andromedae, we believe SMSF administration should feel clear and manageable, not stressful.

We take care of the record-keeping, reporting, and audit preparation that ensure your fund’s insurance obligations are always met. You stay in control of your fund’s direction; we keep everything accurate and compliant behind the scenes.

Handled properly, insurance adds stability to your SMSF and peace of mind for everyone involved.

Need help managing insurance or the compliance side of your SMSF? Get in touch with us today.

Disclaimer: Andromedae and its staff do not provide financial advice on whether an SMSF is right for you. We also do not provide advice on what investments your SMSF should undertake. Our role is to manage the administration and compliance of your SMSF. Please seek advice from your own financial professionals to determine what is best for your personal circumstances. All content in this blog is provided as general information only.