Menu

SuperInsurance


by daniel archibald

Not all that long ago I was speaking with an elderly gentleman, who was retiring, and we were looking over his various superannuation statements.  To his horror/abhorrence he noticed that within his superannuation a monthly debit of $200 or so was being withdrawn as an insurance premium.  This was for death and disability insurances that were attached as an extra benefit.  As he had had the plan for quite some time he calculated that he had paid tens of $1,000s in premiums and as he was about to close his superannuation he definitely did not see this as an "extra benefit".  Moral: Check and understand your superannuation account(s).

Although this reaction is probably the opposite of most people we speak to about their superannuation, it does highlight the need for all of us to take a good look at our super plans.  Furthermore, to many, these unknown extra insurance benefits hidden within superannuation are often a welcome surprise and more and more people are taking advantage of being able to have some of their life insurances paid for by their otherwise restricted super monies. 

But is it a good idea to hold life insurance within super?  And what life insurances can you get your superannuation to pay for?

Starting with the latter, the following life insurances are generally allowed to be held and paid out from your superannuation:

  • Death cover
  • Disability cover - Total and Permanent Disability (TPD) Cover and Income Protection

The reason these are permitted within the super environment is due to the overriding purpose of super – to provide an income once you stop working and/or to provide a death benefit to your dependants once you die.  There are no other expenses that really fit these criteria, i.e. you can't hold health insurance within super or pay your Foxtel subscription.
 

Proceeding to the former, here is a quick list of the pro's and con's of taking out the above life insurances (death and disability covers) through your superannuation fund:

Pro – Save on day-to-day cash flow – as you can't touch your super for a while anyway, you could put your super to good use by paying for necessary premiums, meaning you save on your out-of-pocket-expenses;

Con – Premiums eat away at your retirement savings – you are still paying the premium, but just not out of your immediate funds and if you don't manage it properly, it could simply mean that your savings for retirement are going to be adversely affected;

Pro – Tax – Most super funds will rebate the tax deduction they receive (up to 15% of the premium) back to your super account.  Also, putting money into super is generally done before-tax as well, meaning that these payments can effectively be paid with pre-tax monies – up to a 46.5% discount;

Con – Tax – If you do not have a spouse or dependent children, your beneficiaries may have to pay 16.5% tax on death benefits.  Also, TPD benefits, which are tax-free if held outside of super, are also taxable.  The tax consequences for income protection are generally the same whether in or outside of super;

Pro – Keeping inside super – For retirement, and above age 60, having as much of your assets within super is generally a good idea.  But getting money into super at later ages can be difficult.  Taking out disability covers inside super can help with this as you can effectively keep claim proceeds inside your super fund and leave them there to help give you a tax-effective retirement;

Con – Keeping inside super – There are laws on when you can take money out of super.  Generally, above age 55 and retired.  So even though you may have suffered a disability and are successful in making an insurance claim, you may not be able to touch it until a long while after.

 

 First things first –

The most important thing to do is understand how much life insurance you need. 
Next, check how much cover you already have (don't forget to scour your superannuation statements to see if you have some you may not already know about).
Then, if you need death cover, TPD cover or income protection it can be worth looking at taking some of it out through your superannuation.  This could help you to save on cash flow and tax.
Finally, have the cover implemented so that you are protected and ensure that you have a good level of protection to help secure your family's financial future

LBW Financial Services Pty Limited is a Corporate Authorised Representative of Wealthsure Pty Limited (AFSL Lic. No. 238030)

LBW Financial Services Pty Limited is an authorised representative of Wealthsure Pty Ltd, AFSL 238030, ABN 93 097 405 108.  The information contained within these articles is of a general nature only.  Any rates (tax rates, Centrelink rates, exchange rates, etc) are correct at time of publication and are subject to change.  Whilst every care has been taken to ensure the accuracy of the material contained herein at the time of publication, neither the author, authorised representative, nor licensee will bear responsibility or liability for any action taken by any person, persons or organization on the purported basis of information contained herein.  Without limiting the generality of the foregoing, no person, persons or organization should invest monies or take action on reliance of the material contained herein but instead should satisfy themselves independently of the appropriateness of such action.