Life Insurance and Superannuation

Discussion in 'Superannuation' started by hiho, Nov 14, 2012.

  1. hiho

    hiho Active Member Silver Stacker

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    I have been reading up on Life Insurance and it appears to be allowed in a SMSF. However you cannot move a current life policy over to your fund, bit of a catch if you have any reason you would not want to be medically assessed again. The SMSF trustee must take out the policy, not the individuals.

    So if you currently have life insurance for say $100,000 for you and your wife costing approximately $50/month of after tax dollars you weigh this up against the SMSF paying these fees as Life insurance premiums are not tax-deductible for personal income tax purposes, but premiums are deductible within a super fund. (check ATO for advice)

    Food for thought? Interested in anyone that has experience and whether premiums vary greatly from a personal policy?
     
  2. Jislizard

    Jislizard Well-Known Member Silver Stacker

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    Thanks for that, one more thing to consider and one more potentially money saving idea.

    As I am currently tied to having a SMSF and an Industry Superfund the Industry Superfund has that covered.
     
  3. mmm....shiney!

    mmm....shiney! Administrator Staff Member Silver Stacker

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    And cheaper than you could get.

    @hiho, I'll PM when I get home
     
  4. AngloSaxon

    AngloSaxon Active Member

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    One of the few benefits to staying in a traditional super fund rather than a SMSF, I thought this month when setting up my SMSF, is that the super funds can buy insurance at a bulk or group rate. SMSF's can only buy insurance at retail rates.

    If that is important to you, you need to make an assessment of whether the higher cost of insurance is offest by higher returns under the SMSF.
     
  5. hiho

    hiho Active Member Silver Stacker

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    Good points fellas, few things to weigh up, there are also some tax implications if the beneficiary is a non-member of the fund
     
  6. Clawhammer

    Clawhammer Well-Known Member Silver Stacker

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    Is it because with superannuation life insurance, it involves at some point, drawing down on the super funds? That's the impression I've gotten.

    As most people these days have little or no savings to draw on, in the event of some form of disability or income loss...the personal insurance policy has to cover everything (Premiums are higher). Whereas if the insurance is linked to your super, at some point your super kicks in and contributes to your care (lower premiums)
     
  7. Fykus

    Fykus Member Silver Stacker

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    i think someone in my thread (young people and smsf's) said that if you get life insurance through your smsf then the payout gets taxed because it goes through the smsf or something like that. not sure if thats right or not but worth looking into because that could affect your decision aswell.

    edit i had a look through there and i dont think i seen it mentioned.... maybe it was another thread. hmmm
     
  8. Franko

    Franko Member Silver Stacker

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    Yes I'm pretty sure you are able to change the ownership of the policy you own personally (your the policy owner) to a SMSF. It is not medically underwritten however a new applicaiton needs to be signed by the new trustees. The original policy owners (policy outside of SMSF) will need to sign a covering letter to confirm new ownership. The medical questionnaire doesn't need to be completed unless you are increasing the sum insured on the policy. The policy is cancelled and reissued by the Insurer to the new policy owner.

    I have Life, TPD and IP insurance in my SMSF.
     
  9. hiho

    hiho Active Member Silver Stacker

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    Not the case,

    http://www.superguide.com.au/smsfs/smsfs-transfer-life-insurance-to-diy-super-fund
     
  10. mmm....shiney!

    mmm....shiney! Administrator Staff Member Silver Stacker

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    PM'd you earl.
     
  11. bullionfrog

    bullionfrog New Member Silver Stacker

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    I do have Life Insurance in SMSF the provide is AIG which linked to esuperfund. ESuper had provider Macquarie which was very expensive.

    I think is worth to have Life protection under your super because you only paid 15% of tax on your contribution. So money wise you saved some tax from your personal pocket.

    AIG quote is quite competitive, even if you are a smoker is cheaper than others. My understand is AIG does not pay as much commission to the broker (esuperfund) then other insurance company (e.g. you join via a bank insurance).


    Check that out:
    http://www.esuper.agismsf.com.au/Partnership.aspx
     
  12. mmm....shiney!

    mmm....shiney! Administrator Staff Member Silver Stacker

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    For those in esuperfund (which I don't like), it's cheaper to organise it yourself rather than through any partnership agreement they may have.

    Here's a link I sent the OP, http://www.insurancewatch.com.au I use AIA which is the Company esuperfund also has an agreement with, but I can get it cheaper than their agreed price. It pays to do your own leg work.
     
  13. Lunardragon

    Lunardragon Well-Known Member Silver Stacker

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    bring up this topic to the top....

    I have life insurance and income protection policies under my industry super fund.

    Since having these policies in SMSF is expensive, do you guys think it is cost effective to have two supers (one SMSF and one industry super fund) running at the same time?

    Also, if lets say you decide to keep both supers opened, can the employer's contribution being split 50% to SMSF and the reminder 50% to industry super fund?

    I love the idea also having $ in the industry super fund to diversify the investment.


    Your thoughts are much appreciated.


    LD
     
  14. nonrecourse

    nonrecourse Well-Known Member

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    If you have life insurance in your name as opposed to in an SMSF. The life insurance you pay is not tax deductible but there is no tax when paid to your beneficiaries. In super it is taxable but the premiums are tax deductable.

    Kind Regards
    non recourse
     
  15. Naphthalene Man

    Naphthalene Man Active Member Silver Stacker

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    This is my goal for 2014 - to sort out my insurances including life insurances.

    My work has a financial planner that roves across the business units in Australia who comes and gives impartial advice. He (and my accountant separately) suggested that it is better to have income protection insurance separate to life insurance. It is okay to have the life insurance in your superfund but income protection is better to have it outside of your super.

    why?
    i don't remember now, this stuff is too confusing. :p
     
  16. redwood

    redwood New Member

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    Hi there,

    Do you have a current SMSF? It is not required to have life insurance through your SMSF, however your investment strategy should consider life insurance.

    So, you have two options:
    1. Put your life insurance through the SMSF re IP really depends on your personal circumstances and your premiums will depend on your health, illnesss etc, and premiums are deductible through the SMSF. Generally you will transfer your whole balance of superannuation from your industry/ employer sponsored fund to your SMSF
    2. after you set up your SMSF, get a quote for IP and see what is the better option i.e inside or outside of super. So you can do a partial rollover and leave the IP in the industry fund, however, this becomes a bit of a burden.

    Doesn't hurt to get a quote in case if you are setting up an SMSF or have an existing SMSF.

    To answer the question from post 13, I donot think it is cost effective to run insurance inside and outside the fund but again, depends when you took the insurance out and depends if your personal circumstances have changed...

    Be sure that your 30 June 2013 Investment Strategy includes consideration of life insurance, if you need a investment strategy just contact me and i'll send it to you.

    Hope that helps

    Cheers, Ivan
     

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