Should I Hold Insurance Inside Superannuation..?

"Should I hold insurance inside superannuation?"

A question I am often asked my clients. While there is no simple answer as it depends on your own circumstances, I have highlighted some of the key considerations below and explained what you need to know.

Holding insurance inside superannuation can be a worthwhile strategy, depending on your own financial circumstances. Before we get into the important considerations for this, it’s important to explain what the various types of personal insurances are and which can be held inside your super.

The four key types of personal insurance are as follows:

  • Life Insurance: Life cover provides your beneficiaries with a lump sum if the life assured dies while covered by the policy.
  • Total & Permanent Disablement Insurance: Total and Permanent Disablement Insurance (TPD) provides a lump sum payment of the life assured becomes disabled on a total and permanent basis.
  • Disability Income Insurance: Disability Income Insurance provides the life assured with a monthly payment to replace the income that otherwise would have been derived if the insured person becomes disabled meeting the requirements of the policy.
  • Trauma Insurance: Trauma cover, or Critical Illness cover, provides a lump sum payment if the life assured is diagnosed with a medical illness or suffers from a trauma event that is covered within the insurance policy.

Now let’s take a look at which can be held within your superannuation fund:

Type of Insurance Held in Super Held Personally
Life Insurance Yes Yes
Total and Permanent Disablement insurance Only ‘any occupation’ TPD cover can be held in super ‘Any’ or ‘Own’ occupation can be held personally outside of super
Disability Income insurance Yes Yes
Trauma insurance No Yes

Holding your insurances through your superannuation fund can be beneficial for you for a number of key reasons such as:

  • Cash Flows: As the insurance premiums are deducted from your superannuation balance, this does not impact your day-to-day cash flows.
  • Tax-Effective: The insurance premiums may be paid by your concessional (pre-tax) super contributions which reduces the ‘real / net’ premiums being paid.
  • Lower Cost: In some cases, insurance through your super fund may be at a lower cost that if they were held outside.

While these benefits exist, it is not a ‘black and white’ solution to simply put your insurance inside your superannuation. You need to consider a number of key factors such as:

  • Tax Implications: Holding some insurance policies that are tax deductible outside of your superannuation may be beneficial for you, depending on your taxable income in Australia. This can be particularly valuable if you are an Australian expat with rental income that is taxed in Australia at your high, non-resident, tax rate.
  • Retirement Plans: If you are planning to pay your insurance premiums with your superannuation, it’s important to consider how this will impact your retirement plan. While paying your insurance premiums with your superannuation can help your cash flows now, this could be at the expense of your retirement income in the future.
  • Payout Conditions: It is important to be aware of the release conditions within your superannuation. If these conditions are not met and you receive a payout for an insurance policy held within your super fund, this could mean that you have been paying for insurance that did not provide you with any benefit when you needed it most.

For the benefit of the Australian expats in Singapore and elsewhere offshore, I am often asked whether you can take out insurance in Australia while you are offshore, the short answer is typically yes.

Speak to a qualified financial adviser who has experience with expats and in Australia who can guide you correctly to the right solution for you.


To Your Financial Success!

 Jarrad Brown is an Australian-trained and qualified Fee-Based Financial Adviser with Australian Expatriate Group of Global Financial Consultants providing specialist financial advice and portfolio management services to international and local professionals in Singapore.

To discuss how these personally finance matters could impact you, click here to book in a complimentary, obligation-free meeting with me: Book Your Meeting Here.

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