It may be more affordable to take out life and total and permanent disability (TPD) insurance in a super fund rather than outside super.
HOW DOES THIS STRATEGY WORK
If you buy life and TPD insurances in a super fund, you may be able to take advantage of a range of upfront tax concessions not available outside super. For example, in the 2019/20 financial year:
- If you’re eligible to make salary sacrifice contributions, you may be able to purchase insurance in a super fund with pre-tax dollars.
- If you make personal super contributions, you may be able to claim the contributions as a tax deduction – regardless of whether they are used in the fund to purchase investments or insurance.
- If you earn less than $53,5641 pa and you make personal after-tax super contributions, you may be eligible to receive a government co-contribution of up to $500 that could help you cover the cost of future insurance premiums.
These concessions can make it cheaper to insure through super, or to help you get a level of cover that might otherwise not have been affordable.
Another benefit of insuring in super is that you can usually arrange for the premiums to be deducted from your account balance without making additional contributions to cover the cost.
This can make insurance affordable if you don’t have sufficient cashflow to pay the premiums outside super.
The trade-off, however, is that you will use up some of your superannuation savings that could otherwise meet your living expenses in retirement.
OTHER KEY ISSUES TO CONSIDER
- Lump sum tax may be payable when a death or TPD benefit is paid from a super fund in certain circumstances.
- You (or your eligible dependants) may be able to receive a TPD (or death) benefit from super as an income stream.
Where this is done:
– lump sum tax won’t be payable when the income stream is commenced2, and
– the income payments will be concessionally taxed.
- Any contributions made to a super fund including contributions made to cover the cost of insurance premiums, will count towards the contribution caps. If these caps are exceeded, significant tax penalties may apply.
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- Includes assessable income, reportable fringe benefits and reportable employer super contributions (of which at least 10% must be from eligible employment or carrying on a business).
- The maximum amount that you can transfer to pension phase in your lifetime is $1.6 million. This amount is indexed periodically.
Source: MLC (National Australia Bank Limited ABN 12 004 044 937, AFSL 230686)
General Advice Disclaimer
All of the material published on this website is for information purposes only and does not constitute advice. This information is of a general nature only and has been provided without taking account of your objectives, financial situation or needs. Because of this, we recommend you consider, with or without the assistance of a Financial Adviser, whether the information is appropriate in light of your particular needs and circumstances. Westlawn Wealth Management Pty Ltd ABN 32 124 861 409 Corporate Authorised Representative of Affinia Financial Advisers Limited ABN 13 085 335 397 AFSL No. 237857. Please note that Affinia Financial Advisers Limited is not responsible for the advice and services provided by Westlawn Finance Limited, Westlawn Insurance Brokers Pty Ltd, Westlawn Life Insurance Pty Ltd or Westlawn Business Services Pty Ltd.