The end of the financial year is the perfect time to review your insurance arrangements, including your general business insurance and personal life insurance policies.
Many believe it’s best to hold life insurance through superannuation, largely because the premiums can be tax-deductible. While this can be a smart strategy sometimes, it’s not always the best fit for everyone.
When you pay for life insurance through your super, you’re drawing down your super balance.
While there are limits on how much you can contribute to super, there’s no limit on how much can be deducted to cover insurance premiums.
In some extreme cases, people may unknowingly reduce their retirement savings by funding large insurance premiums through super, while building investment assets outside of super and paying more tax on the income those assets generate, which can significantly hinder long-term wealth creation.
That said, if you’re not contributing the maximum to your super each year, then funding life insurance through super can be tax-effective.
For lower-income earners, holding assets in your own name may also have no tax disadvantage. It’s also worth considering whether your insurance through super is more affordable or simply the most practical way to ensure you’re covered, especially if your cash flow outside of super is limited.
Another important consideration is who your beneficiaries are. If you’re planning to leave your life insurance to adult children or if you need to claim a TPD (Total and Permanent Disability) benefit, depending on how your policy is structured, there may be tax implications.
That’s why it’s essential to review your insurance with both an accountant to help you navigate the tax side and an insurance adviser to ensure you’ve got the right coverage at the best price.
A little planning now can make a big difference to your future. Why not ask us how we can assist you at the end of the financial year with your tax, super or business needs?
Disclaimer
The information contained in this publication is for general information purposes only, professional advice should be obtained before acting on any information contained herein. Neither the publishers nor the distributors can accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this publication.