Insurance in Superannuation
It can also be beneficial to hold insurance via superannuation.
Insurance held via superannuation is owned by the Trustee of the super fund for the benefit of the insured member. The Trustee deducts the insurance premiums from either ongoing contributions or the account balance of the fund.
It is generally death, TPD and income protection that can be held in the super environment (not trauma cover). Also, the premiums for death, TPD and income protection insurances purchased through a superannuation fund are completely deductible to the fund. Furthermore, you can usually fund the insurance premiums via a tax-deductible superannuation contribution if you are self-employed, or out of your employer contributions made to your superannuation fund. Note that the tax treatment of an insurance policy should never be the primary reason for holding an insurance policy under a particular structure.
Insurance benefits can be paid out as either lump sums or pensions (or a combination of both) based on your (or your beneficiary’s) circumstances at the time. Insuring via superannuation can also assist with personal cash flow as the premiums are paid by the fund.
Preservation of Superannuation
Generally, money in a superannuation fund is ‘preserved’ until you attain preservation age and meet a condition of release (such as retiring from the workforce). Preservation age is currently between age 55 and 60, depending on your date of birth.
Conditions of release that may apply prior to preservation age include permanent incapacity, terminal illness and death. Other conditions of release that may apply prior to preservation age – including temporary incapacity, compassionate grounds, and severe financial hardship have “cashing restrictions” attached to them – which either limits the amount that can be paid to you or compels the fund to release benefits in the form of a pension rather than lump sum.
Death Benefits – Tax Dependent Beneficiaries
In the event of your death, the policy proceeds will be paid into your superannuation account. The proceeds together with your accumulated super balance will then be paid tax-free to your nominated beneficiary(ies) whether directly or via the estate.
Alternatively your beneficiary(ies) could choose to have some or all of your benefits paid as a tax-effective pension if that is their preference and they are eligible to do so at that time.
Death Benefits – Non-Dependent Beneficiaries
In the event of your death, the policy proceeds will be paid into your superannuation account. The proceeds together with your accumulated super balance will then be paid to your nominated beneficiary(ies) and/or your estate.
If your superannuation is paid to a non-dependent beneficiary(ies) on your death, it is anticipated that tax will apply. The amount of tax payable will depend on the components of the superannuation benefit, and whether the trustee has claimed the premium as a tax deduction.