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 the strategy work?

If you buy life and TPD insurances in a super fund, you may be able to take advantage of a range of concessions not available when insuring outside super. For example, in the 2017/18 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 (see Case study on opposite page).
  • 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 $51,813 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 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 commenced, 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.

SUPER TIP – Simple explanation of super strategies:

The following links are other super tips – click below

Convert your super into a tax-effective retirement income
Top up your income when cutting back work
Sacrifice pre-tax salary into super
Top up your super with help from the government
Convert business capital into tax-free retirement benefits

For more information on this subject feel free to get in touch with us click here.

To read more about our specialised service offers for SMSF, please click here.

Disclaimer and Warning
The information above is of a general nature only. It should not be used as a source to make financial decisions. It’s also important to note that the legislation and figures related to this topic tend to change regularly and therefore the information above may not reflect the current status. We recommend that if you are looking for advice on this matter, you should contact us.