Making insurance affordable for you

Having inadequate life insurance cover can result in unexpected financial pressures which on top of a serious heath event can put significant strain on families at an already difficult time.  Misunderstanding their finances is one of the main reasons Australians fail to protect themselves and their families. Often people think they cannot afford to pay for insurance cover, but there are strategies available which can make insurance premiums affordable for you.

Did you know that you can pay for some of your insurances through your super fund? This can ease the burden of paying insurance premiums if you have a low disposable income as you will not need to use money from your disposable income to fund your premium payments.

Alternatively, if cash flow is available you can still structure your insurance through your super fund but you can also make contributions to your super fund equal to the premium payments. There can be tax benefits from doing this, for example:

• If you are employed for a third party, and are eligible, you can salary sacrifice some of your wage to your super fund to pay for your insurance premiums. This way you are using pre-tax dollars to pay for your insurance.

• If you are self-employed you can make personal contributions to your super fund to pay for your insurance premiums. If eligible, you can claim a personal tax deduction which will help to reduce your income tax.

In these circumstances your super fund may also be able to claim a tax deduction for your insurance premiums which will further reduce the overall cost for you.

Bear in mind there are some things to be aware of when funding your insurances inside of super:

• There are certain conditions that must be met before any funds, including insurance proceeds, are paid to you from your super fund. The trustee of your super fund will determine if a benefit can be released from your super fund or not.

• Upon death, tax may be payable on some benefits, including insurance proceeds paid from your super fund. The amount of tax payable (if any) will depend on which beneficiary receives the proceeds from your super fund. You should ensure a valid superannuation binding death nomination is in place so that benefits are paid as intended.

• Paying premiums from superannuation may erode your retirement funds. Therefore, you may consider making additional superannuation contributions to “top up” your fund balance if you are financially able.

Funding insurance through your super fund is a good strategy to make your insurance premiums more affordable. Before doing this there are some important factors that must be considered, so ensure you seek advice before taking out or altering any insurance policies.

Author: Kelsea Pipe