Paying For Your Insurance Within Super
Putting place an effective wealth protection strategy is important to almost everybody. Unfortunately, not everybody can afford the cost of implementing insurance to the same level which is why paying for your insurance within super can often be an effective way of ensuring your family is protected in the event of an unfortunate event.
There are a number of different insurance policies, but the only ones that can effectively be paid for using superannuation funds are:
What Do I Need To Be Aware Of?
For starters, any time you choose to have your premiums paid via your super balance you are effectively worsening your potential retirement situation. For some, this is an acceptable balance between having important cover in place and not having any cover at all. There are ways to address that, and many people look to increasing contributions to superannuation at some point in the future.
If you are able to make salary sacrifice contributions you may be able to purchase your insurance using pre-tax dollars (see case study). This can have a significant impact on the total cost to you.
Perhaps you earn less than $49,488 (2014-15 figures). If this is the case, you may be eligible for a government co-contribution of up to $500 by making a personal contribution to super. Depending on the cost of your insurance this could mean that the whole policy is paid by the government or at the very worst you are getting a $500 discount on your policy.
By insuring via super, you or your dependents may be able to receive the TPD or life cover proceeds as an income stream.
John (age 42) is married to Shiela (age 40). John is working full-time on an income of $110,000 and his partner is not working at this time. After a review of their goals and objectives, their financial adviser recommends a life insurance policy with a sum insured of $500,000 or allow their mortgage to be replaced and for replacement income for a number of years. The premium for this cover is $1,000 in year one.
Explaining the options, the adviser demonstrates the following two scenarios for the couple on how they can structure their insurance premiums.
|Outside Super||Inside Super|
|Cost of cover (premium)||$1,000||$1,000|
|Tax at marginal rate of 38.5%||$626||$0|
|Pre-tax salary used||$1,626||$1,176|
Over the course of 20 years with the cost of cover increasing each year the savings are huge and can run into tens of thousands of dollars. With these kinds of savings possible, it makes sense to take up advice from a specialist insurance adviser who can help you choose the right solution.