Insurance

Having adequate insurance cover can be a critical component of any holistic financial plan, and through superannuation, you may be able to save money on premiums.

The most common insurance options offered through super funds are:

• Life insurance: provides a lump-sum payout, in addition to your super balance, if you die while a member of the fund.
• Total and permanent disability insurance: provides a lump-sum payout if you become totally and permanently disabled; is payable from superannuation once you meet a condition of release.
• Income protection insurance: provides a replacement income of up to 75% of your income if you cannot work for an extended period of time, usually a month or more, although some policies will cover you after two weeks, due to injury or illness¹.

How does insurance through super work?

Rather than paying premiums to an insurance company from your after-tax salary, the premiums for an insurance policy held through your super fund are automatically deducted from your super balance. You can usually nominate the amount you are insured for, and any waiting periods.

What are the benefits?

Funding your life insurance through your superannuation fund may provide tax concessions not generally available for life insurance policies held outside of super.

In addition, the same tax concessions that apply when investing in super also apply when purchasing insurance through a superannuation fund.

You may be entitled to claim a tax deduction for personal contributions made to superannuation. In addition, salary sacrifice contributions to super can be used to fund your insurance premiums. Using either of these methods means you will effectively pay your insurance premiums from pre-tax income. This could make it significantly cheaper for you to insure through superannuation, leaving you with more disposable income.

All death benefits paid to dependants from super funds are tax free.

What do I need to check before I start?

Contributions to your super fund are subject to the concessional contribution caps. Take care not to exceed these caps or you will be subject to tax penalties.

Life insurance benefits may attract a tax liability if paid from a super fund. Income protection benefits through superannuation are usually taxed at normal marginal tax rates.

Life insurance benefits may attract tax of up to 30%¹ if paid to a non-dependant, while total and permanent disability insurance benefits may attract tax.

You should also consider the impact of premiums on your ultimate retirement balance.

For these and other reasons, though, insurance through a super account may not be what’s best for you and your family. To identify which types of insurance are most suitable for you, you can use our online booking form to organise an initial, no-obligation consultation with a Commonwealth Financial Planner and start planning for a better life today.

 

• Important information
  1. Current as at 1/01/2011.
  
  This information is of a factual nature only and is not intended to constitute financial product advice. It has been prepared by Commonwealth Financial Planning Limited without considering your individual objectives, financial situation or needs. You should consider its appropriateness in light of your circumstances and consider seeking professional advice relevant to your individual needs before making a decision based on this information. Commonwealth Bank customers who wish to obtain information about retirement planning may do so by contacting a Commonwealth Financial Planner. Commonwealth Financial Planners are Representatives or Authorised Representatives of Commonwealth Financial Planning Limited ABN 65 003 900 169, AFSL 231139, a wholly owned but non-guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124.