Self-managed super fund (SMSF) investors are bearing an increasing risk of being underinsured, financial advisory firm Centric Wealth said.
In a changing regulatory landscape, it is becoming increasingly difficult for SMSF trustees to meet legislative and compliance requirements. The changes highlight the importance for SMSF trustees to seek professional help to manage and protect their funds.
"We think it would be very difficult for most Australians to understand the full scope of their insurance requirements without some sort of formal training," Centric Wealth technical specialist Natasha Panagis said.
She explained that although regulatory change is compulsory, it is up to trustees to determine the appropriate level of insurance cover they should offer to members.
While members of larger super funds are often provided with some form of automatic death and total and permanent disability insurance cover, automatic cover is generally not provided by SMSFs.
Recent federal government figures indicate that only 13 per cent of SMSFs have some form of insurance.
"We certainly recommend an adequate level of insurance to all our clients so their families can remain financially secure in the event of the main income earner passing away or having a major accident which prevents them from returning to work in the future," Ms Panagis said.
The risk of underinsurance is even more significant given the recent surge in SMSFs accessing loans to buy investment property.
"Where trustees have borrowed money to buy property, not having life and total and permanent disability cover can become a major problem if one of the members passes away unexpectedly or becomes disabled and can no longer contribute into super.
"The key risk here is that the SMSF will go into negative cash flow, which could be exacerbated if there are existing debt arrangements in place," she said.
"Trustees should also consider obtaining general insurance cover such as rent protection insurance in order to safeguard their hard earned retirement savings."
