Life Insurance & Superannuation - In or Out?

Over the past two and a half years, the Life Insurance Industry has seen a rise in the number of individuals choosing to fund their life insurance premiums (death benefits) via their superannuation. As one would expect, the main reason for this rise is the affordability and financial benefits of not being out of pocket, but still owning a term life insurance policy.

Life Insurance Inside Super

Premiums can be paid from existing superannuation savings, non-concessional (un-deducted) contributions, salary sacrifice arrangements in the case of employees, or tax-deductible contributions by the self-employed (concessional contributions).

In it worth noting that if one chooses to fund their insurance through their superannuation, the government may in certain situations assist with the premiums payments via a number of concessions, such as government co-contributions for low-income earners and spouse contributions. Such incentives are not available when term life insurance is not purchased through their superannuation.

Another big positive is the tax deductibility of premiums within superannuation.

Life Insurance Outside Super

Although there are a number of benefits in electing to have one's term life insurance within their super, there are a number of negatives.

These include the fact that money devoted to insurance premiums ultimately reduces one's nest egg and every dollar spent on term life insurance written within superannuation is one less dollar that can be used to invest in a concessionally taxed investment environment (taxed at a maximum rate of 15% inside super, versus a maximum rate of 46.5% outside super).

Another factor to keep in mind is that death benefits paid out to non-dependents is taxed at a much higher rate when someone elects to have their insurance written within their superannuation.

If you would like to discuss your insurance requirements with an accredited insurance adviser, contact Rate Detective today.

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Published on April 4-th, 2012 in Life Insurance
Damon Rasheed is the CEO of Rate Detective, an Australian financial service comparison sites specialising in Life Insurance, Income Protection Insurance and home loans. Damon holds a Master's Degree in Economics from the University of Melbourne and has been involved in many start-up internet businesses.

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