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Life Insurance

Mar 09, 2016 (0) comment

Life Insurance – Inside of Outside Super!

The big questions has always been around whether Life Insurance is better within super or outside super.

Our expert team have come up with two simple tables which summarise a few key differences of having life insurance inside super and outside super.

Life Insurance Inside Superannuation

  1. Term Life Insurance (Death Cover)Premiums are paid from pre-tax earnings. Your premiums are deducted from your superannuation balance – Tax may apply to benefit payments. This is dependent on beneficiary(s) age and relationship to policy owner – Term Life Insurance within super is generally known as group cover as it is not a rated individual policy.
  2. Total and Permanent Disablement Insurance (TPD Cover) – Premiums are paid from pre-tax earnings. Your premiums are deducted from your superannuation balance – No tax applies to benefit payable to the policy owner. Depending on the super fund trustee there may be benefit release issues – Many people have had problems with their super fund trustee releasing benefits because they haven’t yet reached preservation age.
  3. Income Protection Insurance (Salary Continuance Cover) – Premiums are paid from pre-tax earnings. Your premiums are deducted from your superannuation balance – Tax will apply to benefit payments – Most Income Protection Insurance Policies within super have limited benefit periods and have poor definitions compared to external policies.
  4. Trauma Insurance (Recovery Insurance) – Premiums are paid from pre-tax earnings. Your premiums are deducted from your superannuation balance – No tax applies to benefit payable to the policy owner. Depending on the super fund trustee there may be benefit release issues – Releasing benefits may be an issue because of preservation age requirements.

Life Insurance Outside Superannuation

  1. Term Life Insurance (Death Cover) – Premiums are paid from after tax earnings and are not tax deductible – Tax does not apply to benefit payments – Premiums are not paid by pre-tax earnings.
  2. Total and Permanent Disablement Insurance (TPD Cover) – Premiums are paid from after tax earnings and are not tax deductible – Tax does not apply to benefit payments – Premiums are not paid by pre-tax earnings.
  3. Income Protection Insurance (Salary Continuance Cover) – Premiums are paid from after tax earnings and are tax deductible – Tax will apply to benefit payment. The benefit payable from Income Protection Insurance forms part of the policy holders taxable income – Income Protection has no restrictions outside of superannuation.
  4. Trauma Insurance (Recovery Insurance) – Premiums are paid from after tax earnings and are not tax deductible – Tax does not apply to benefit payments – Trauma Insurance has no restrictions outside superannuation.

There are definitely a lot of things to consider when it comes to the structure and ownership of your life insurance policy(s).

Why’s 2 Cents!

The cheapest premium may not always mean you’re getting the most appropriate cover for your personal needs and circumstances.

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