by Nest Egg with Shane Gourley
SUPERANNUATION is generally used to accumulate retirement savings but can also be used to fund life insurance policies for death and/or disablement.
Funding insurance through superannuation can provide many strategic opportunities and may help the with access and affordability.
However, there are also pitfalls due to the impact of superannuation rules so it is important to determine if superannuation is the most appropriate structure to hold the insurance.
The first step is to determine the type and amount of insurance cover needed.
The next step is to decide if the cover should be held inside or outside superannuation by weighing up the advantages and disadvantages. Some of the issues which need to be considered before giving advice to hold insurance inside superannuation include:
- Types of cover available
- Superannuation contribution rules (eligibility and caps) and the payment of premiums
- Tax deductibility of premiums
- Preservation and access to the money (paid as superannuation benefits)
- Taxation of benefits
- Limitations on product features (due to SIS restrictions on the types of payments that can be made)
- Underwriting implications
- Time delays for the payment of benefits
- Restrictions on who can be nominated under superannuation death benefit nominations.
These implications should be compared for insurance inside and outside superannuation to ensure you are aware of any potential disadvantages so you can make informed decisions and manage the outcomes.
It is important for superannuation fund trustees to consider the insurance needs of all members, as this must be adequately considered within the documented investment strategy.