Insurance tips tools and strategies

Tips tools and strategies

Tips tools and strategies

For most of us, understanding how to protect ourselves, our families and our assets can be confusing. But it doesn’t need to be.

Making life insurance more affordable

There are a number of strategies to help you reduce the effective cost of life insurance. These include:

  • Taking advantage of tax-effective insurance inside super please refer below.
  • Claiming your income protection and business expense insurance premiums as a tax deduction.
  • Using the flexible features of your OnePath policy to put a hold on your premiums – e.g. if you’re not currently employed (note: these features will vary depending on the type of policy you have).
  • Partner cover discount – if you and your partner take out cover at the same time you may receive a discount off the total premiums.

Because everyone’s circumstances are different, the best way to ensure your insurance is as tax and cost-effective as possible is to speak to your financial adviser.

Tax-effective insurance inside superannuation

An extremely tax-effective way to save for your retirement, superannuation can also provide a good home for some types of life insurance – helping you reduce the effective cost of your premiums.

How does it work?

You hold your life insurance – usually death and total and permanent disability (TPD) cover – inside your super account, and use your super contributions to pay your premiums.

Instead of purchasing a stand-alone insurance policy, where premiums are paid for from your after-tax income, using your super contributions means you’re effectively paying your premiums using pre-tax money.

How does insurance through super benefit you?

  • You may not have to find extra money to pay for your premiums because these can be paid from your super fund account balance.
  • Tax concessions apply for most premiums paid.
  • Given the savings, you may be able to top up any stand-alone insurance policies (those you hold outside of super) and increase your overall coverage.
  • Your qualifying dependants can receive unlimited tax-free lump sum payments if you, the insured, pass away.
  • Premiums via group super plans can be cheaper because the super fund is buying the insurance 'in bulk'.

Are there any limitations?

  • When an insurance policy is held inside super, the super fund is the owner of the policy. That means any benefits are paid to the fund before they’re paid to you or your beneficiaries. This could potentially slow down payment, and add an additional set of criteria you need to meet before the funds are released.
  • Eroding your super balance to pay your insurance premiums can reduce your long-term retirement savings. To avoid this, you might consider salary sacrificing into your super to cover your insurance premiums.
  • Insurance benefits for policies held outside super are often paid tax-free – regardless of who receives it. The same rules do not necessarily apply for benefits paid via a super fund. For example, if a beneficiary is a non-dependant child or adult, a death benefit may taxed at 16.5%.

To find out more about insurance through super, talk to your adviser.

Protecting your estate

After a lifetime of working hard and accumulating your wealth, you will want to know that your estate is distributed according to your wishes.  From providing funds for dependants, to ensuring the right people are looked after, life insurance can play a critical role in your estate planning affairs. This may include:

  • Direct beneficiary nominations Many super funds allow you to complete a ‘binding nomination’ which enables you to direct your death benefit to the person you want to benefit. It’s a good idea to make a binding nomination where possible – giving you greater certainty over where your benefit will go.
  • Providing funds for the surviving spouse and/or children
    Including insurance in your estate plan can help ensure your family has enough money to survive comfortably after you’ve gone.
  • Re-distributing your estate You can use your insurance to distribute your estate in a way that is fair to you. This is especially relevant for people who want to leave their business to one child, but don’t want to disadvantage the others.
  • Protecting the second family One third of Australian marriages involve at least one person who has been married before. Given this, the need to protect children from the first marriage as well as the spouse and children of second marriages can be important.
    Effective structuring of insurance can help ensure the right people benefit from your estate, and limit the possibility of your Will being contested

To discuss the role life insurance can play in protecting your estate, you should speak to your financial adviser. Alternatively, if you know what you want, you can either buy online or over the phone today.

Tips tools and strategies business

Understanding how to protect ourselves, our employeres and our assets can be confusing. But it doesn't have to be. Here are some tips and strategies to make it easier.

Tools, guides & fact sheets

Useful tips, tools and strategies

Protect your key employees

If you’ve got any employees whose loss would leave a serious impact on the profitability of your business, you can take out a life insurance policy on those individuals.

If one of those key people then dies, your business will receive a lump sum payment to help you make the necessary changes to recover from their loss.

Cover your business debts

Just like you would typically take out life insurance to cover your mortgage and personal debts, business owners should also consider protecting any debts in the name of the business.

This can help ensure your business remains viable if you die or suffer a total and permanent disability – improving saleability, and helping protect your family from any financial consequences that may result.

Cover your business expenses

Business expense insurance can be used to cover your fixed business expenses if you are totally or partially disabled.

This may include expenses like rent and lease payments, insurances, and wages for non income-producing employees – allowing you to keep your business running while you’re away from work.

Use life insurance to fund a buyout

If you’re in a business partnership, life insurance can be used to fund what’s known as a ‘buy sell’ arrangement. Say, for example, you own a business 50/50 with someone else. You might set up a buy sell arrangement that specifies that if one of you dies, the other will buy the other out to take full ownership of the business.

To fund this arrangement, the business takes out life insurance policies for each of you – with the sums insured equivalent to half the value of the business. If one of you then dies, the proceeds of the insurance policy are paid to the beneficiaries of the deceased – effectively cashing out their half of the business.

Full ownership of the business is then passed onto the surviving partner, without them having to find a large sum of money at short notice.

Take out insurance tax-effectively inside super

Insurance inside super can be a good way to make insurance more tax-effective, and more convenient, for you and your employees.