How to make your insurance more affordable

Did you know you can save money by buying your insurance in super? This is because super can offer both cash-flow benefits and tax concessions.  

Most super funds offer insurance that can help you, or your dependants, pay off debts and replace your income if the unexpected was to happen. This includes Life, Total and Permanent Disability (TPD) and Income Protection insurance.

While these types of insurance can also be bought outside super, you’ll have to fund the premiums from your own pocket, and you probably won’t get any tax breaks if you buy Life and TPD insurance.

On the other hand, when you insure in super, the premiums are deducted from your super balance. This means you can arrange the amount of cover you need without having to pay the premiums from your cash-flow.

The downside is you’ll use up some of your super money which could help you meet your living expenses in retirement.

While this could make a difference when you’re no longer working, it’s important to think of what could happen to your family’s lifestyle in the meantime if you don’t have the protection of insurance.

If you or your family faced financial difficulty you could run out of savings very quickly, well before your intended retirement date. So insuring in super could be a great solution if you don’t have enough cash-flow to pay for the premiums outside super.

Even if you think you could pay the premiums outside super, there are still cost-effective benefits of insuring inside super. This is because if you make super contributions, there are some tax concessions, regardless of whether the contributions are used to buy insurance or investments. For example:

• if you’re an employee and eligible to make salary sacrifice contributions, you may be able to buy insurance through a super fund with pre-tax dollars

• if you earn less than 10% of your income from employment (eg if you’re self-employed or not employed), you can generally claim your super contributions as a tax deduction, and

• if you earn less than $46,920 each year, of which at least 10% is from employment or a business, and you make personal after-tax super contributions, you may be eligible to receive a Government co-contribution of up to $500 in 2012/13. That could help you cover the cost of future insurance premiums.

To find out more about insuring inside super, please contact our office on Total Wealth Management on 07 3281 1226 or twm@totalwealth.com.au.

This document contains general information only. MLC GROUP is not a registered tax agent. If you wish to rely on this newsletter to determine your personal tax obligations, you should consult with a Registered Tax Agent. In preparing this information, MLC GROUP did not take into account the investment objectives, financial situation or particular needs of any particular person. Before making an investment decision, a person needs to consider (with or without the advice or assistance of an adviser) whether this information is appropriate to their needs, objectives and circumstances. This information is based on our interpretation of relevant superannuation, social security and taxation laws as at 1 July 2013.