Personal insurance is a smart way to protect your quality of life and provide support for you and your loved ones if you get sick or injured.
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.
- 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.
- 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.
- Life Insurance. Pays a benefit if you die or become terminally ill helping your family take care of debts and ongoing household expenses.
- Total & Permanent Disability (TPD). Pays a benefit if you are permanently disabled helping cover the long-term costs of care for you and your family.
There are advantages and disadvantages to holding insurance inside or outside super:
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 Trauma 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 Trauma insurance and own occupation TPD Insurance cannot be purchased inside super. Trauma cover will only be purchased outside of super. Premiums for Trauma insurance are generally not tax deductible.
*Deductions for existing own occupation cover may only be partially deductible. From 1 July this type of policy can no longer be purchased inside super.
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.
Recent good news story
A client recently was diagnosed with cancer. The client had multiple tumours that had to be removed, unfortunately they had to stop work and undergo a costly major surgery with a long recovery period. Fortuitously the client had taken out trauma insurance with me so I handled the entire claims process on behalf of the client and achieved a full payout of over $165,000. The client now has peace of mind with no financial burden and can focus her energy on recovering.
Get personalised advice that is right for you
We would like to offer you a complimentary consultation to help you find the right insurance solution for you and your family.
Contact myself Justin from Fortuna Active Wealth, part of the Commercial Associates Group and I can help you secure your insurance needs in the most tax-effective manner and as part of your overall financial plan.
Please contact me on 02 9299 1200 or email me on Justin@caaa.biz.