Retirement
Should I hold life insurance in my superannuation?
Holding life insurance through superannuation is a common strategy as it is often the most inexpensive way to take out this insurance, but is it the right solution for you?
Should I hold life insurance in my superannuation?
Holding life insurance through superannuation is a common strategy as it is often the most inexpensive way to take out this insurance, but is it the right solution for you?
The changes proposed by the government to superannuation (although yet to be legislated) could impact on the ability for some Australians to hold life insurance in super.
One such change is the proposed reduction in the concessional superannuation contributions cap for all individuals, down to $25,000 a year from July 1, 2017.
This could limit the amount people can provide for their retirement. As a result, they could decide that it no longer makes sense to pay premiums for life insurance out of their superannuation balance.
As an example, Felix is under 50 and has been contributing $30,000 to superannuation each year.
He has structured his life insurance through his superannuation fund, paying premiums of $5,000 a year.
Felix is on the top marginal tax rate of 49 percent which includes Medicare Levy and Temporary Budget Repair Levy for the 2017/2018 financial year.
If the superannuation changes are legislated, Felix will only be able to contribute $25,000 per annum from July 1, 2017. These contributions will be further eroded by the insurance premiums he will pay inside his superannuation fund.
Key is that life insurance premiums inside superannuation are deductible to the fund at the rate of 15 percent a year. But life insurance premiums outside of superannuation are not tax deductible to an individual.
If Felix were to transfer the policy outside super, he would need to allocate an additional $10,000 of his income to fund the premium.
If he deducted this from his annual super contribution, this would leave only $15,000 to go toward super.
After tax, this would only amount to $12,750 a year going into super.
If, however, he were to leave the policy inside his superannuation fund his member balance would increase by $17,000 a year.
Everybody’s situation is different so it’s important to get advice before making any changes to superannuation and life insurance approaches.
Peter Speechley, wealth management and superannuation partner, HLB Mann Judd Perth
RELATED ARTICLES
Superannuation
Expanding super for under-18s could help close the gender super gap, says Rest
In a push to address the gender disparity in superannuation savings, Rest, one of Australia's largest profit-to-member superannuation funds, has called for a significant policy change that would allow ...Read more
Superannuation
Employment Hero pioneers real-time super payments with HeroClear integration
In a significant leap forward for Australia's payroll and superannuation systems, Employment Hero, in collaboration with Zepto and OZEDI, has successfully processed the country's first ...Read more
Superannuation
Rest launches Rest Pay to streamline superannuation payments and boost member outcomes
In a significant move aimed at enhancing compliance with upcoming superannuation regulations, Rest, one of Australia’s largest profit-to-member superannuation funds, has unveiled an innovative ...Read more
Superannuation
Rest appoints experienced governance expert to bolster superannuation fund
Rest, one of Australia's largest profit-to-member superannuation funds, has announced the appointment of Ed Waters as the new Company Secretary. Waters, who brings with him over 15 years of extensive ...Read more
Superannuation
Small businesses brace for cash flow challenges as Payday Super becomes law
With the new Payday Super legislation now enacted, small businesses across Australia are preparing for a significant shift in how they manage superannuation contributions. The law, which mandates a ...Read more
Superannuation
Rest launches Innovate RAP to support fairer super outcomes for First Nations members
In a significant move towards reconciliation and inclusivity, Rest, one of Australia's largest profit-to-member superannuation funds, has unveiled its Innovate Reconciliation Action Plan (RAP)Read more
Superannuation
Payday super legislation promises fairer retirement for part-time and casual workers
In a landmark development for the Australian workforce, the recently passed Payday Super legislation is set to transform the retirement landscape for countless part-time and casual workersRead more
Superannuation
Payday Super passes as Employment Hero, OZEDI and Zepto unite to help small businesses meet new seven-day payment rule
With the Payday Superannuation Bill officially passing through Parliament, Australian businesses are now less than eight months away from a major shift in how superannuation contributions are made — ...Read more
Superannuation
Expanding super for under-18s could help close the gender super gap, says Rest
In a push to address the gender disparity in superannuation savings, Rest, one of Australia's largest profit-to-member superannuation funds, has called for a significant policy change that would allow ...Read more
Superannuation
Employment Hero pioneers real-time super payments with HeroClear integration
In a significant leap forward for Australia's payroll and superannuation systems, Employment Hero, in collaboration with Zepto and OZEDI, has successfully processed the country's first ...Read more
Superannuation
Rest launches Rest Pay to streamline superannuation payments and boost member outcomes
In a significant move aimed at enhancing compliance with upcoming superannuation regulations, Rest, one of Australia’s largest profit-to-member superannuation funds, has unveiled an innovative ...Read more
Superannuation
Rest appoints experienced governance expert to bolster superannuation fund
Rest, one of Australia's largest profit-to-member superannuation funds, has announced the appointment of Ed Waters as the new Company Secretary. Waters, who brings with him over 15 years of extensive ...Read more
Superannuation
Small businesses brace for cash flow challenges as Payday Super becomes law
With the new Payday Super legislation now enacted, small businesses across Australia are preparing for a significant shift in how they manage superannuation contributions. The law, which mandates a ...Read more
Superannuation
Rest launches Innovate RAP to support fairer super outcomes for First Nations members
In a significant move towards reconciliation and inclusivity, Rest, one of Australia's largest profit-to-member superannuation funds, has unveiled its Innovate Reconciliation Action Plan (RAP)Read more
Superannuation
Payday super legislation promises fairer retirement for part-time and casual workers
In a landmark development for the Australian workforce, the recently passed Payday Super legislation is set to transform the retirement landscape for countless part-time and casual workersRead more
Superannuation
Payday Super passes as Employment Hero, OZEDI and Zepto unite to help small businesses meet new seven-day payment rule
With the Payday Superannuation Bill officially passing through Parliament, Australian businesses are now less than eight months away from a major shift in how superannuation contributions are made — ...Read more
