Life insurance via super: why you should consider it

Life insurance policies can be structured in various ways but for most people, they take out a policy in their own name. This is referred to as self ownership.

An alternative to self ownership is superannuation ownership. In this case, a superannuation fund owns the policy on your life, not you. Superannuation ownership may result in your premium becoming more affordable compared to an equivalent self-owned policy. This is because you can arrange for your premium to be funded in pre-tax dollars.

So how does it work? Consider the following example:

Simon arranges a life insurance policy in his super fund. His annual premium is $1,000 and he arranges to have this deducted from his super fund account balance. Simon is an employee earning $80,000 pa, his marginal (top) rate of tax is 30% and his employer allows him to make salary sacrifice contributions to his super fund.

The table below illustrates the premium saving available to Simon if he chooses superannuation ownership:

  Self ownership Superannuation ownership
Gross salary $80,000 $80,000
Less salary sacrifice ($0) ($1,000)
Take home salary $62,450 $61,750
Net premium $1,000 $700
Saving $0 $300 (or 30%)

This strategy can also be used if you are self-employed and meet the criteria to make deductible super contributions. You would simply make a $1,000 contribution to your super fund and claim a personal tax deduction for it. Assuming your marginal tax rate is 30% like Simon’s, your net result will also be a 30% saving on your premium.

There are, however, some implications to consider when considering superannuation ownership for life insurance. For instance, salary sacrificing will affect your concessional contribution cap (the amount you are allowed to salary sacrifice to superannuation), there are contribution tax issues to be aware of and as your super fund is able to claim your premium as a tax deduction to the fund, you need to understand how they account for the deduction and whether the benefit is passed on to you.

Given these factors, we recommend seeking advice from an expert before taking out life insurance in your super fund.



This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial and tax advice prior to acting on this information.Opinions constitute our judgement at the time of issue and are subject to change. Financial Planning Expert Pty Ltd does not give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document.
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    Financial Planning Expert is an independent financial planning business based in Melbourne. We provide genuinely independent and conflict free financial advice. We’re experts in self-managed superannuation fund (SMSFs) advice and strategy, retirement planning, property and share investment advice, life and income protection insurance, tax planning, asset protection, estate planning and advice for Australian expatriates.