<< Back to Blog

Insurance: inside or outside super?

Posted on

Most people can choose to own life insurance themselves, or to set up this insurance through their superannuation fund. But this is not just a simple decision – the way these policies operate and are taxed may change depending on whether they are held inside or outside super.

A key benefit of having life insurance within your super fund is that the premiums are deducted from your super account, rather than your personal account. The disadvantage is that it can reduce the amount of money you have available in retirement.

In some circumstances, the super fund can claim a tax deduction for the cost of the premiums. So it’s tax-efficient because the premiums are effectively paid with pre-tax money. In addition, basic cover may not require a medical examination and this can be beneficial for people who can’t get life insurance directly, for example, due to a pre-existing condition or illness.

However, it’s important to realise that not every superannuation fund offers every type of life insurance cover. Few super funds offer trauma cover because they can’t claim a tax deduction for these premiums. It may not be possible to get the amount of cover that you need, and the terms are sometimes less comprehensive than a policy owned directly.

Another disadvantage is that it’s not always possible to immediately withdraw the money from your super fund even if the insurance policy pays into your account. This is because superannuation was designed as a retirement savings vehicle subject to a strict set of rules controlling access. From 1 July 2013 a beneficiary must satisfy a condition of release as defined in the legislation before receiving any lump sum payment from a Total and Permanent Disability policy held within a super fund.

Anyone can own or be a beneficiary of a life insurance policy owned directly, but the options are narrower for policies held in super because the person must be considered a beneficiary under the super, and may end up paying tax on the payout.

Another option is to take out cover both through super and directly, and in fact, this combination may sometimes offer the best solution. To find out what would work best in your circumstances, come and talk to us.

<< Back to Blog

Contact Us

p. +61 7 3832 5777
f. +61 7 3832 5778
e. admin@dolfinwise.com.au

The Right Start
Bronnie Abraham recently featured in the Financial Planning Magazine as the latest winner of the Gwen Fletcher Memorial Award for being the highest achiever in the CFP Certification Unit.
Continue reading...

Bronnie Abraham wins Gwen Fletcher Memorial Award
Dolfinwise financial planner Bronnie Abraham is the winner of the latest FPA Gwen Fletcher Memorial Award
Continue reading...

Planning on Investing? Have you considered a Super option?
Dolfinwise adviser Jason Bragger has been selected as the Superannuation Expert in the Financial Planning Association's "Financial Planning Week". Read Jason's Super & Investment Blog here.
Continue reading...

Dolfinwise announce merger
Dolfinwise is proud to announce the merge of Cameron Renshaw & Associates with Dolfinwise commencing 1st June 2013. Financial adviser Howard Querido will join the merged firm
Continue reading...

See More
Financial Planner Dolfinwise © 2019 | Legal Notes | Useful Sites | Web Design Brisbane by TwoCents Group Intelligent Advice