The introduction of SIS Reg 4.07D means that an insurance benefit for a member must not be paid unless it is consistent with the condition of release requirements of the Act. This means that trauma insurance may not be an allowable insurance policy to be paid via a super fund. Trauma insurance has a lump sum payment paid when particular circumstances occur such as cancer heart attack, stroke etc. and the policy benefit payment is not dependent upon whether the member is forced to quit work or is permanently disabled.
Previously SMSF Determination 2010/1 had allowed a trustee to obtain a trauma insurance policy for a member and satisfy the sole purpose test if certain conditions were met. This determination has now been withdrawn in light of Regulation 4.07D. This means that a fund is not able to take out any new trauma policies unless the purchase of that policy is to support a benefit being paid prior to 1 July 2014, although the conditions of SMSFD 2010/1 must still be met:
- Any benefits under the policy must be paid to a trustee of the SMSF;
- Those benefits become part of the assets of the fund until the relevant member satisfies a condition of release;
- The policy wasn’t purchased to provide a benefit for some other person such as a member or a relative.
Any policy provided to a fund member, that did not exist for that member prior to 1 July 2014, must have the insured event that is consistent with the conditions of release which are death, a terminal medical condition, permanent or temporary incapacity.