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Is your insurance structurally-sound?


It’s always a smart strategy to protect your family’s lifestyle with life insurance. But it’s even smarter if you can get the structure right for your circumstances.

When you take out life insurance, it’s an investment for your future. With that cover in place, you know that if you ever experience a serious accident or illness, you have financial support to help pay your medical bills and maintain your lifestyle.

Compared to the premiums you pay, the benefits you can receive from life insurance can be life-changing. However, there is a way to make those premiums work even harder, and it largely comes down to the way you structure the ownership of your cover.

How do you hold your life insurance?

Let’s look at the most common types of life insurance: Term Life, Income Protection, Living/Trauma Insurance, and Total and Permanent Disablement (TPD) Insurance.

Each of these provides a different type of protection, so you could potentially need all of them in your financial plan. But that doesn’t mean you need to hold them all in the same way.

Take Term Life insurance (or ‘death cover’) as an example. It’s one of the most common types of life insurance because it can help eliminate your debts and provide an ongoing income for your dependants in the unfortunate event of a death.

Outside super, Term Life premiums are not tax-deductible to you personally. But inside super, your premiums are generally tax-deductible to your super fund which may reduce the tax deducted from your benefits.

How will your benefits be taxed?

The best structure for your insurance is not all about making your premiums more tax-effective. You also need to think about how benefits will be taxed.

For example, Term Life benefits paid out of superannuation are tax-free if they are paid to a spouse, a child under 18 or a financial dependant. However, if anyone else receives them – such as an adult child or relative – they may have to pay tax.

By contrast if you hold Term Life cover outside super, anyone can receive the proceeds tax-free.

Is your insurance plan up-to-date?

Your insurance needs can change over time, so you should talk to your financial adviser to make sure you have adequate life insurance cover, and that it’s structured in the best way for your circumstances.

Could your Term Life benefit cover your mortgage?

Most employees automatically have some Term Life insurance provided by their employer, or employee super fund. But have you checked how much you are insured for, and whether it would be enough to cover your mortgage and other financial responsibilities?

The level of cover is often a minimum amount based on your age and/or income, and it generally doesn’t take into account your debts or dependants. While some insurance cover is always better than none, the best way to get the cover you need is to get a personal insurance assessment from your financial adviser.

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