Before we dive headfirst into the details of why insurance isn’t just a luxury item but an essential for every person, family and business, let’s get some definitions straight.
These definitions may seem complex, but trust us when we say that getting clear on these now, will make things a whole lot easier both down the line and as you continue reading!
Life insurance helps to ensure that your family can continue to live the lifestyle you planned for them, even when you’re no longer here. A sudden death, illness or injury can place extreme financial stress on those who depend on you, Money Smart. Anyone who has debt in theory needs life insurance. Let’s take a look why…
Let’s say you have a $900,000 mortgage on your house and a $10,000 car loan. Regardless of how high your income may be, if you were to pass away suddenly, not taking out life insurance means your family would be left to foot the $910,000 loan. What this looks like practically is that they would most likely need to sell the house and the car which would have a ripple effect on all areas of life alongside coping with grief… the last thing you want to leave your family with!
Life insurance means that your family can continue to pay the bills and other living expenses should your income suddenly stop. This is particularly important if your income is the main source of cashflow in the family.
Please note, it is important that you nominate a beneficiary as part of your policy, so you can ensure the benefit and money goes to those who matter most to you!
Did you know that SMSF Trustees have an obligation to consider taking out life insurance for members? Whilst not required by law to take insurance out, they do need to consider if it is appropriate. Often members will maintain life insurance outside the SMSF, however, there may be price and taxation benefits to holding the insurance inside the fund.
You may be able to claim a tax deduction on personal contributions paid to a superannuation fund if you meet eligibility criteria. Information about tax deductions for superannuation contributions including lodging your intention to claim a tax deduction can be obtained online at ato.gov.au
Death benefit superannuation lump sum death benefits paid to a tax dependant of the deceased will be tax-free. A person who is a dependant for superannuation purposes may not be a tax dependant, and vice versa. For example, a child aged 18–25 who is a dependant for superannuation purposes and entitled to receive a death benefit will not be a tax dependant unless they are financially dependent on you or in an interdependency relationship with you. If that child is not financially dependent on you or is not in an interdependency relationship with you or the child is aged 25 or over, the death benefit paid to that child will not be tax free. More information about who is a dependant for superannuation and tax purposes can be found online at ato.gov.au.
Superannuation lump sum death benefits paid to non-tax dependants will be taxed at up to 15% plus the Medicare levy (if paid from a taxed source) and up to 30% plus the Medicare levy (if paid from an untaxed source). A non-tax dependant may include an adult child aged 18 years or older. Where a death benefit is paid to the legal personal representative of a deceased estate, tax is payable according to who is intended to benefit from the estate. It may be tax free if the lump sum death benefit is payable from the estate to tax dependants of the deceased.
Otherwise, it will be taxed as a benefit paid to non-tax dependants. Note: the Medicare levy will not apply to a lump sum death benefit that is paid to a non-tax dependant via the deceased estate.
Where required, tax payable on a death benefit may be withheld before an amount is paid from the superannuation fund.
Lump sum benefits paid from a superannuation fund to a person with a terminal medical condition are tax-free.
Lump sum benefits received from a superannuation fund are divided into two components – a tax-free component and a taxable component. The tax-free component is always tax-free. The taxable component is taxed depending on the person’s age and whether a taxed or an untaxed element exists.
Kelly Partners Private Wealth can review your current insurance policies and try to find you cheaper premiums. With the cost of insurance increasing every year, insurance can get very expensive.
This offer for Private Wealth Services is not available to clients of BMF as at 31 December 2016.
Kelly Partners Private Wealth (Wholesale) Pty Ltd is a corporate authorised representative of Kelly Partners Private Wealth Pty ltd (AFSL: 516704, ABN 14 629 559 860). Any general advice provided has been prepared without taking into account your objectives, financial situation or needs. Before acting on the advice, you should consider the appropriateness of the advice with regard to your objectives, financial situation and needs.
Kelly Partners Private Wealth Sydney Pty Ltd is a corporate authorised representative of Madison Financial Group Pty Ltd (AFSL: 246679, ABN: 36 002 459 001)