A guide to the issues every SMSF Trustee must understand first, before insuring an SMSF property
SONAS WEALTH | THE SMSF COACH Last reviewed: 9 November 2026 · Rules as at 9 November 2026
SMSF TRUSTEE EDUCATION SERIES
By Liam Shorte | Fellow SMSF Specialist Advisor™ | Financial Planner
Either trustee can hold the policy, because both have an insurable interest in the property. We prefer the SMSF trustee holds it in the fund’s name. Where the property sits in a holding trust under s.67A of the SIS Act, the holding trustee is a bare trustee and should act only on the SMSF trustee’s written direction. Yes, if you have purchased a commercial or residential property in your SMSF it is important for you to take the correct steps to insure your investment. If its a few years later and you are moving insurance providers, make sure to check you use the right details for the new replacement policy too!
Who does this apply to?
This applies to SMSFs that hold a property under a limited recourse borrowing arrangement, where a holding trustee holds legal title. If your fund bought its property outright, the SMSF trustee holds title directly and there is no holding trustee to choose between, but the points on adequate cover, the fund’s name and landlord insurance still apply. Insurance on members’ lives is a separate question that trustees must consider under their investment strategy (reg 4.09(2) of the SISR).
Don’t skimp on your insurances because when the time comes and you have a claim, you won’t be congratulating yourself on how much money you saved on your insurance premiums.
Does an SMSF have to insure its property?
Yes. If you borrow against the assets in your SMSF, the mortgagor will require you to have adequate cover for the asset and for the liability obligations of the SMSF. If the assets of the fund cover the purchase in full, you are still required under your fiduciary duty as trustee to insure the fund’s interests correctly, and the fund should not attempt to “self-insure” any assets or property. The ATO has strict guidelines regarding the duties and obligations of SMSF trustees, so get your insurance program right from the start. If you move insurers a few years later, check that you use the right details on the replacement policy too.
Under Section 52B(2)(f) of the SIS Act, trustees have a strict covenant to prudently manage and look after the fund’s assets. If a major asset like a building is left uninsured and is flooded or burns down, thereby destroying a large portion of the members’ retirement wealth, the ATO or an SMSF auditor could rule that the trustees failed in their legal duty to protect fund assets.
The question arises: who takes out the property insurance and landlord’s protection insurance, the SMSF Trustee or the Holding Trustee?
Who should hold the policy: the SMSF trustee or the holding trustee?
Both are entitled to, because both have an insurable interest in the land. That covers property insurance and landlord insurance. Whichever trustee holds the policy, the SMSF trustee pays all amounts payable under it, and the holding trustee must hold any policy proceeds on trust for the SMSF.
The SMSF trustee may take out the insurances because the fund is liable under the loan and is absolutely entitled to the benefit of the property. The fund is the party that suffers if anything happens to the property, so the SMSF trustee should confirm that the fund is able to claim for any damage that occurs.
The holding trustee is the legal owner of the land and may insure the property against damage, and likewise take out landlord insurance. Some lenders also insist that the registered proprietor holds an insurance policy for the property.
| Policyholder | Why it works | What to watch | Who pays |
|---|---|---|---|
| SMSF trustee (our preference) | The fund is liable under the loan and is entitled to the benefit of the property. Avoids the ongoing interplay with the bare trustee. | The insurer or the lender may require the registered proprietor to hold the policy. | SMSF trustee, from the fund |
| Holding trustee | Legal owner of the land. Some lenders want the registered proprietor insured. | Needs the SMSF trustee’s written direction and confirming minutes. Holds any proceeds on trust for the fund. | SMSF trustee, from the fund |
What must a holding trustee do if it holds the policy?
Act only on the SMSF trustee’s direction. The holding trustee is a bare trustee, so it must not take any action unless the SMSF trustee, which is absolutely entitled to the property, directs it to. That direction should be formal and in writing, and the holding trustee should confirm it by executing minutes.
From a purely administrative position, it is easier for the SMSF trustee to hold the insurances, because that avoids the constant but mandatory interplay with the bare trustee. The insurer and the fund’s lender may have their own requirements, so check both before you decide.
Why do we prefer the policy in the fund’s name?
It keeps fund and personal assets apart, and it is simpler to run. Our preference is to hold all insurances for the SMSF in the name of the fund. You cannot list personal items or assets on a policy in the fund’s name, and you cannot list the fund’s assets on a personal policy that covers some of your personal assets. The SIS Act requires trustees to keep fund assets separate from their personal assets (s.52B).
What does a landlord insurance policy cover?
The same two things as your household policy, building and contents, plus extra covers that household insurance does not offer. As with all insurance, you get what you pay for: the more optional extras you include, the more protection you have. Read the definitions to work out which items sit under building and which under contents, because you may be in for a surprise if you have not studied the wording. Wording differs between insurers, so check the product disclosure statement for the policy you are offered.
The additional covers on a fairly standard landlord policy are:
Loss of rent. Covers your lost income if you have a claim under the building and contents cover and the property becomes uninhabitable as a result.
Strata title mortgagee’s protection. Covers the mortgagee named in the schedule as if they were “you”, on the same terms as Section 1, against physical loss or physical damage caused by any of the defined events. It does not include the additional benefits.
Deliberate damage or theft by tenants. Covers physical damage to the building or contents arising from deliberate, intentional, or malicious acts by the tenant, and theft by the tenant.
Tenant default. Covers loss of rent payable by the tenant that arises from damage covered under the deliberate damage or theft by tenants section, or from a breach of a written lease.
What does under-insuring cost a fund?
Example only; the people and figures are fictional. Priya and Daniel Nair are the two directors of Nair Super Pty Ltd, the trustee of their SMSF. The fund owns a unit bought with a limited recourse loan, with Nair Property Pty Ltd as holding trustee. The unit rents for $650 a week. The broker quotes building cover with a rebuild sum insured of $620,000. To trim the premium, Daniel suggests insuring for $450,000.
That saves some premium, but a total loss would leave a $170,000 gap ($620,000 less $450,000) that the fund would have to meet from its own cash, while the loan stays in place. They keep the $620,000. They also ask for 12 months of loss of rent cover, which at today’s rent is $33,800 ($650 × 52), have the policy written in the name of Nair Super Pty Ltd as trustee of the fund, and have the lender’s interest noted. Each year at renewal they check the sum insured against current rebuild costs.
What do we see in practice?
I trained in general insurance in the UK after my graduation, and much of that time was in the complaints, claims, and product design departments. So I know how things go wrong when people take out unsuitable policies or under-insure their properties. 35 years later, nothing has changed. That is why I recommend a general insurance broker to trustees who are inexperienced, lack confidence, or want help and advice about insuring their business, liability, or property assets. In 25 years in the SMSF space I have seen a few disasters:
- Example 1: Lapsed Policy During a Major Storm
- What happened: The Trustees took out property insurance initially but forget to renew when they let the direct debit fail due to a changed bank account inside the SMSF. A severe storm damages the roof and interior 6 months later.
- The Outcome: The claim was rejected by the insurer because the policy was inactive for so long. The cost of repairs had to come directly from the SMSF’s remaining cash reserves. As the cash reserves were insufficient, the trustees were forced to inject personal funds (subject to contribution caps) and nearly had to sell the damaged asset at a massive loss.
- Example 2: Neglecting Public Liability Cover
- What happened: An SMSF owned a residential investment property rented out on a long term basis. A visitor slipped, and fell, and suffered a serious injury, then sued the SMSF property owners for negligence.
- The Outcome: Without a comprehensive property policy that included public liability, the SMSF assets were exposed to direct litigation, forcing a liquidation of fund assets to pay legal damages and court-ordered compensation.
- Example 3: Total Fire/Disaster on a Borrowed Property
- What happened: An SMSF purchased a commercial investment property using an LRBA. The trustees skipped ongoing property insurance to save on annual premiums during a business downturn where they were not making contributions and cash flow in the SMSF was tight. A fire completely destroys the building.
- The Outcome: Because there was no building insurance policy, the structure could not be rebuilt. The SMSF still owes the remainder of the bank loan (though LRBAs limit recourse to the fund property itself, the property’s value dropped to just the land value), almost destroying the retirement savings of the members tied up in the equity. The SMSF auditor flagged a severe compliance breach to the ATO.
Frequently asked questions
Can personal assets go on the fund’s insurance policy?
No. You cannot list personal items or assets on a policy in the fund’s name, and you cannot list the fund’s assets on a personal policy covering some of your own assets. Keeping them separate follows the requirement in s.52B of the SIS Act to keep fund assets apart from personal assets.
What should I check when I move to a new insurer?
Check every detail on the replacement policy: the policyholder name, the property address, the sum insured, the covers included, and the lender’s interest. Carrying over a wrong name or an outdated sum insured can leave the fund short at claim time.
Do I need an insurance broker?
You are not required to use one, but we recommend a general insurance broker if you are inexperienced, lack confidence, or want help insuring a property, liability, or business asset. If you do not know one, ask the people you trust with your investments and accounts to introduce a broker they trust.
Who pays the premiums?
The SMSF trustee pays all amounts payable for the insurance, whichever trustee holds the policy. That means the premiums come from the fund’s bank account, not a trustee’s personal account. If the holding trustee holds the policy, the SMSF trustee still pays, so the holding trustee is never out of pocket.
What should you do before the next renewal?
Chances are you have worked hard to acquire your assets and build your super for retirement. Don’t skimp on your insurances. When the time comes and you have a claim, you won’t be congratulating yourself on the premium you saved; you will be hoping your policy responds.
Before your next renewal, ask your broker three questions:
- whose name is on the policy,
- does the sum insured match the current rebuild cost, and
- which additional covers are included?
If you are a Sonas Wealth client, send your current certificate of currency to your adviser before the renewal date.
The SMSF Coach or Sonas Wealth do not request or receive any commissions or referral fees from recommending services from Insurance brokers, we just want the best professional advice for our clients.
For more detail on Investing in Property through an SMSF check out our previous articles here
Are you looking for advisors that will keep you up to date and provide guidance and tips like in this blog? then why not contact us at our Castle Hill or Windsor office in North West Sydney to arrange a one-on-one consultation, just click the Schedule Now button up on the left to find the appointment options. We do have clients nationwide so reach out!
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Bye for now.
Liam Shorte B.Bus FSSA™ AFP
Financial Planner & Fellow SMSF Specialist Advisor™
Tel: 02 9899 3993, Mobile: 0413 936 299
PO Box 6002, Norwest NSW 2153
40/8 Victoria Ave. Castle Hill NSW 2154
Corporate Authorised Representative of Viridian Advisory Pty Ltd ABN 86 605 438 243, AFSL 476223
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