Life Insurance inside your Superannuation

Do you have insurance through your super?

If you pay your personal insurance premiums via superannuation, you may not be aware of the potential tax costs to the beneficiary. It is our recommendation that you be fully aware of these implications and how they can impact on payments to your beneficiaries.

Death benefits and tax through superannuation. 

There are criteria on who can receive death benefits from a superannuation fund. Beneficiary nominations are limited to dependants as specified under the Superannuation Industry Supervision (SIS) Act, or the estate. Note: benefits can only be paid to a ‘non-SIS’ dependant through the estate.

The Tax Act definition of a death benefit dependant determines how a death benefit is taxed. This differs from the SIS Act definition.

If a death benefit is paid to a dependant, the entire benefit is tax free if paid out as a lump sum.

However, death benefits paid to non-dependants are split between tax-free and taxable components. No tax applies to the tax-free component. The taxable component will be taxed at 15% on taxed element and 30%* (plus 1.5% Medicare levy) on untaxed element. An untaxed element may arise if the death benefit includes a life insurance payment. Non-dependants can only receive death benefits as a lump sum.

The definition of a ‘dependant’ according to the SIS act includes:

• Spouse (legal or defacto)
• Children any age
• Anyone financially dependent on the deceased
• Interdependency relationship

For example...

John is aged 28 and is an only child. He is nominated as a dependant on his father’s superannuation account.

Can he receive a death benefit?

Yes, as he is a dependant under super law.

Will he have to pay tax?

Yes. He is not a “dependant” under tax law, so up to 30% (plus Medicare) tax will apply (if insurance was held through his father’s super fund).

Want to know more about how your life insurance choices affect your beneficiaries? Call us on (03) 9890 3388 to book an obligation-free appointment, or get a free online quote now.

The information contained in this outline is of a general nature only. It has been prepared without taking into account any individual's objectives, financial situation or needs. Before acting on this information, you should consider the appropriateness having regard to your own objectives, financial situation and needs.