Contents

• Benefits from a Superannuation and Term Life Insurance Mix
• Disadvantages
• Benefits from Life Insurance

Before superannuation became universally popular in Australia most people took out life assurance policies that included a share in the investment made by life insurance companies with the money they derived from the premiums paid by the policy holders. This was known as whole of life assurance. These policies had an expiry date at 60 or 65 years of age at which time, if you survived to that age, the policy would be paid out. If you had have died before reaching the expiry date, the policy would have paid out the sum insured to your beneficiary. The interest earned on whole of life policies was small when compared to what you could earn by placing the same amount of money in a savings account. Term life insurance was available and it was sold at a much cheaper rate than that of whole of life policies but it was seen more as a gamble between the policy holder and the insurance company of who would get the money; your beneficiary if you died, or the insurance company if you survived the term of the cover.

Superannuation changed all this, especially when it became compulsory, as a person could now benefit from comparatively high interest earnings from the contributions being made into the fund while benefiting from the much cheaper term life insurance component if you happened to die prematurely. The life insurance purchased through a superannuation fund was also obtained at a cheaper rate again and more tax effective than it would be if purchased separately. This arrangement became very popular with the result that most people now purchase their life insurance in this way.

Benefits from a Superannuation and Term Life Insurance Mix

The benefits gained from taking out life insurance cover under your superannuation fund are as follows:

• It can be an inexpensive way to purchase life insurance.
• If your company fund has included life insurance automatically there may be no medical examination needed.
• It is tax effective in that the premiums are paid out of contributions made by your employer or from your own superannuation contributions that create either a direct tax deduction (if self employed) or paid from pre-tax income as in the case of salary sacrifice contributions.

Disadvantages

As with all things however there can also be disadvantages such as:

• Some superannuation funds don’t provide enough life insurance cover.
• There can be delays in the life insurance being paid out as it will initially be paid into the fund which will then allocate the money to the beneficiaries which can take a period of time.
• You cannot be sure that the money will be paid to the person or persons who you want it to go to unless you nominate a specific person or persons.
• Benefits paid out under superannuation fund rules limit who can receive a payout tax free.

The most popular life insurance in Australia now is term life insurance. When the cover is arranged outside of superannuation it provides a lump sum payment to your family in the event of your death or terminal illness directly to the person nominated on the policy to receive its proceeds. It is available to people aged between 17 and 69 years of age and can usually be renewed until the policy anniversary date prior to the insured’s 99th birthday.

Benefits from Life Insurance

Life insurance can therefore protect your family by providing a lump sum payment in the event of your death or diagnosis of contracting a terminal illness for which you are not expected to survive more that 12 months. It can be used to provide the following:

• Family education expenses.
• Mortgage and other loan repayments.
• Ensuring that your business will survive even if you are not there personally to do so yourself.
• Meeting all the lifestyle costs demanded by a family.
• Payment of funeral costs and any medical expenses that may have been incurred.

Many families struggle to survive after the death of the main income earner and the knowledge that at least there will be no financial burden left behind can give a person tremendous peace of mind.