In­side or out­side su­per?

The Weekly Advertiser Horsham - - News -

Most peo­ple can choose to own life in­sur­ance them­selves or to hold this in­sur­ance in their superannua­tion fund.

But it’s not a sim­ple de­ci­sion – the way th­ese poli­cies op­er­ate and are taxed can vary 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.

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 can­not claim a tax de­duc­tion for th­ese pre­mi­ums.

It might 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 is not al­ways pos­si­ble to im­me­di­ately with­draw the money from your su­per fund.

This is be­cause superannua­tion is de­signed as a re­tire­ment sav­ings ve­hi­cle sub­ject to a strict set of rules con­trol­ling ac­cess.

As a re­sult, 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 might end up pay­ing tax on the pay­out.

Another op­tion is to take out cover both through su­per and di­rectly, and in fact, this com­bi­na­tion might some­times of­fer the best so­lu­tion.

To find out what would work best in your cir­cum­stances, talk to a li­censed fi­nan­cial ad­viser.

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