Are life insurance premiums tax deductible in super?
Life insurances can be owned in your own name or within superannuation. Some insurances are owned partly by you and partly by your superannuation fund.
The term life insurances is a collective term for death cover, total and permanent disability (TPD) cover, income protection cover and trauma (critical illness) cover.
Generally, trauma cover is the only one of these types of insurance cover that are not held within superannuation and are almost always held in your individual name.
Ownership of life insurances is important, as it determines how the premium is paid and where insurance proceeds are paid in the event of a claim.
Life Insurance Premiums Tax Deductible in Super
Is death cover tax deductible within superannuation?
Generally, yes. Death cover insurance premiums will be tax deductible when held or owned within superannuation.
Keep in mind that the premiums are tax deductible to the superannuation fund, not to you personally. Therefore, you cannot claim a personal tax deduction for premiums paid. You may, however, be able to claim a tax deduction for a concessional contribution made to superannuation used to fund the insurance premium.
Although the insurance premium is not tax deductible to you personally, you will usually only pay the net (after-tax deduction) premium from your superannuation member balance, as the trustee will apply to the tax deduction to your account.
Is TPD insurance tax deductible within super?
Tax deductions are available for premiums paid for TPD insurance within superannuation; however, the amount of the tax deduction may be limited.
Basically, premiums relating to an ‘any occupation’ TPD policy will generally be able to be claimed as a full tax deduction; whereas as insurance premiums relating to a TPD ‘own occupation’ policy will only be partially deductible.
Again, the tax deduction is for the trustee of the superannuation fund, not for you personally. However, the deduction will usually be applied to your member balance, effectively reducing your net insurance premium cost.
Is Income Protection Insurance tax deductible within super?
Yes, income protection insurance premiums are a tax deductible expense to the trustee of the superannuation fund, who should then apply the tax deduction/credit towards your member balance.
Keep in mind that income protection insurance premiums are generally tax deductible in your individual name also. So it may be worth considering if you should own the policy in your own name rather than superannuation – particularly if your highest individual marginal tax rate is greater than the superannuation tax rate of 15%, as doing this could result in a greater tax benefit and lower net insurance premium cost.
Is Trauma/Critical Illness Insurance tax deductible within super?
No. Insurance premiums relating to Trauma cover are not a tax deductible expense. Furthermore, trauma cover is generally unavailable within superannuation accounts due to accessibility constraints in the event of suffering a critical illness.
Should I Hold Insurance Within Superannuation?
Most people will have insurances held within superannuation for one or more of the following reasons:
- Automatic: cover was established within their account account upon opening
- Affordability: using superannuation to fund insurance costs means that personal income or personal (non-super) savings will not be impacted
- Tax-Effectiveness: paying insurance premiums within super can be more tax effective due to tax deductions available and tax deductible contributions being able to made to super
- Estate Planning: holding insurances within superannuation and using superannuation nominations can provide greater control and flexibility in an overall estate plan
It is important that all of these factors are considered when putting in place an insurance plan. Estate planning is an often neglected consideration when holding insurances within superannuation. It is particularly important because your superannuation savings are not governed by your Will, but instead by any beneficiary nomination forms provided to the trustee.
The tax deductible level of insurance premiums for cover held within an Australian superannuation fund is only one factor that should be considered when determining ownership of your insurance policies and, as always, any tax related matters should be discussed with a qualified tax professional.
Furthermore, you need to understand the tax implications of insurance proceeds owned within superannuation to ensure that you are not under-insured, due to tax reducing the actual net proceeds of an insurance policy.