INSURANCE: INSIDE OR OUTSIDE SUPER? Structuring your insurance tax-effectively.
Do you and your family have adequate insurance cover? Did you know there is a more tax-effective way to fund your insurance premiums?
HOW DOES IT WORK?
•
Personal insurance is a smart way to protect your quality of life and provide support for your loved ones if you get sick or injured.
Living/Trauma Insurance. Pays a benefit if you suffer a serious illness or accident – helping you cover major medical expenses and/or paying for help around the house.
•
Term Life. Pays a benefit if you die or become terminally ill – helping your family take care of debts and ongoing household expenses.
•
Total & Permanent Disablement (TPD) Insurance. Pays a benefit if you are permanently disabled – helping cover the long-term costs of care for you and your family.
While you often hear how important it is to have sufficient cover, it’s just as important to be smart about the structure of your insurance – so that the dollars you pay for premiums work harder for you. Most types of life insurance can be held inside or outside of super. These include: •
Income Protection (IP). Pays a regular monthly benefit if you become severely disabled by sickness or injuries and you are unable to work – potentially helping your partner take time off work to care for you and/or cover mortgage repayments.
There are advantages and disadvantages to holding insurance inside or outside of super.
Concessional contributions
Non-Concessional contributions
Insurance inside super
• IP, Term Life and TPD insurance premiums are • While most insurable events for IP, Term Life generally tax deductible to your super fund. and TPD result in a condition of release, there are some limited situations where you may not • You can pay your premiums using accumulated be able to access the insurance benefits until super money or by making additional you retire. super contributions – which may come from your before-tax income. • The tax rate payable on a death benefit
Insurance outside super
• IP insurance premiums are generally tax deductible. • Living, Term Life and TPD benefits are generally tax free1. • Insurance benefits are paid directly to you or your nominated beneficiary.
• Living, Term Life and TPD insurance premiums are generally not tax deductible when paid for personally.
1. Life insurance proceeds will be subject to CGT if paid to someone other than the original beneficial owner and that person / entity acquired the policy for consideration. TPD and Living insurance is subject to CGT if the proceeds are paid to someone other than the life insured or a defined relative.
TAX TREATMENT AT A GLANCE The following table summarises the tax treatment of premiums and payouts (benefits) inside and outside super. From 1 July 2014 living insurance cannot be purchased inside super. Living cover will only be purchased outside of super. Premiums for living insurance are generally not tax deductible.
Income Protection
Term Life
Inside super
Outside super
Are premiums tax-deductible?
Yes
Yes
Are benefits taxed?
Yes
Yes
Are premiums tax-deductible? Are benefits taxed?
Yes
No
• Tax-free to dependants • Taxable if paid to non-dependants (with concessions)
Generally tax free
Yes*
No
Taxable (with concessions)
Generally tax free
Are premiums tax-deductible?
TPD
Are benefits taxed? *Deductions for own occupation cover may only be partially deductible.
WHAT DOES IT MEAN FOR ME? Whether you have insurance cover inside or outside of super depends on your personal circumstances and needs. By choosing the right combination, not only can you have the appropriate insurance cover to give peace of mind, but you can do it in a cost and tax-effective manner.
STRATEGY IN ACTION As the table below shows, the higher your marginal tax rate, the bigger the potential saving by taking insurance inside super. Before-tax cost of a $1,000 insurance premium: Taxable income $37,001 – $80,000
Marginal tax rate (inc. Medicare levy) 34%
Before-tax cost outside super $1,515
Before-tax cost inside super $1,000
$80,001 – $180,000
38.5%
$1,626
$1,000
Over $180,000
46.5%
$1,869
$1,000
Source: BT Life Insurance. Assumes insurance is arranged through a taxed super fund. Note: Most insurance premiums are tax deductible to your super fund so it may offset other taxable income (such as investment income and concessional super contributions) your fund receives throughout the year.
For more information, please contact your financial adviser
Contact us for further information on 1300 761 669 or email to info@ofm.com.au
Securitor Financial Group Limited ABN 48 009 189 495 AFSL 240687 Australian Credit Licence 240687. This publication is current as at August 2013. This publication provides an overview or summary only and it shouldn’t be considered a comprehensive statement on any matter or relied upon as such. The information in this publication does not take into account your objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it and obtain financial advice. Any taxation position described in this publication is a general statement and should only be used as a guide. It does not constitute tax advice and is based on current tax laws and our interpretation. Your individual situation may differ and you should seek independent professional tax advice. The rules associated with the super and tax regimes are complex and subject to change and the opportunities and effects will differ depending on your personal circumstances. SECCB14178GC-0813lc