You Talk – What are the pros and cons of buying extra life insurance in or outside super?

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Rodney asks: I’d like to take out extra life insurance. What are the pros and cons of buying it in or outside super?

Hi Rodney,

It’s great to hear you are thinking of topping up your life insurance.

You or another person can take out insurance on your life and usually the proceeds would be paid tax-free to your estate or a nominated person in the event of your death.

Or, you can take out life insurance in your super fund, where the policy would be owned by the superannuation trustees and the money added to your super account after death.

This super death benefit would then be paid, together with your investment account balance, to your estate or a defined list of people eligible to receive a superannuation death benefit.

A big benefit of insuring in super is that the premiums are deducted from your account balance, not your bank account.

So insuring in super can be more affordable if you don’t have the cash to pay for it outside super.

The downside is you will use up money that would otherwise be available to fund your living expenses when you retire.

You can, however, prevent using up some of your retirement savings by making additional super contributions to cover the cost of the premiums.

When doing this, you could also benefit from tax concessions which are usually not available when insuring outside super.

For example, if you are an employee and sacrifice some of your salary into super, you can pay for the premiums with pre-tax dollars.

Or, if you are self-employed, you can claim your super contributions as a tax deduction, regardless of whether the contributions are used to make investments or buy insurance.

These tax concessions can make it more cost effective to insure in super. However, there may be tax implications depending on who receives the death benefit and you may wish to insure for a larger amount to cover the tax.

The best option will depend on your needs and situation. Therefore, we suggest you contact us on |PHONE| to discuss your options before making your decision.