Should you own your life insurance inside or outside your Super? It is such a crux question — one that gives sleepless nights to SMSF members. There is something beautiful to say about both the worlds. Of course, the first thing before you make your decision is to comprehend your ownership structure. What endorsements and exclusions do you want in your cover? What kind of marginal tax rates will apply? Who your beneficiaries are going to be? These are just some of the questions you need to answer to be able to help you make a firm decision.
Merits of life insurance outside the Super fund
Let us dig a little and find out which side of the road stations are you better to stay in. Let us begin with the advantages of life insurance outside Super.
- If you use your Super to fund your premiums, the amount of money you can invest in the Super will be adversely affected.
- Your Super insurance may not offer you adequate coverage. For instance, you won’t fetch Trauma Insurance through your coverage. Moreover, you will have to be severely disabled in order to procure the Total and Permanent Disablement coverage (TPD).
- Life insurance benefits doled out to spouses who have to navigate their way through the superannuation trustees. When the insurance is outside the Super, the claim can be paid to the spouse directly. Needless to say, a quicker and more streamlined process!
- Binding Beneficiary Nomination of the Super fund receives the money, but unless you have made such nomination, the receipt can be a tedious and legally drawn out process. There is no such fuss when the insurance is outside Super.
Merits of life insurance inside the Super fund
All this said, there are certain merits of keeping the life insurance inside Super, too.
- Premiums are deducted from the contributions directly and, hence, the chance of an accidental payment default is negligible.
- Apart from being cheaper, it is also a smart idea in the light of tax deductions. Whether paid from ‘salary sacrifice’ or as employer contribution, the premium amount is eligible for a direct tax rebate.
To learn more about the choice you should make, you can get in touch with me at the SMSF Advice Hub.