Personal Insurance Ownership Structures

When taking out Term, TPD, Trauma or Income Protection Insurances, a very important consideration is who should be the owner of the policy. There are several alternatives as to this decision.  Depending on your individual circumstances we primarily recommend Self Ownership, Superannuation Ownership or SMSF Ownership. The details of these ownership structures are summarised in the table below:

Below are some of the more common scenarios you will see.

 

Ownership StructureProducts Available ForAdvantagesDisadvantages
Self OwnershipSelf ownership Term Life

TPD (any, own, home duties, non-working)

Trauma

Income Protection
The rights attached to the policy are controlled directly by the life insured.

In the event of a claim, the benefit is paid directly to the life insured or in the event of death, will be paid to your nominated beneficiary or in accordance with your will.
To ensure that in the event of your death the proceeds are paid to your spouse or financial dependant, it is important to nominate them as the beneficiary of your policy.

A nominated beneficiary who is not a spouse or financially dependant child may incur a tax liability on the benefit paid.

If a beneficiary is not nominated, it is important to ensure that your will is up to date so that your estate is distributed in the manner in which you wish.

In regard to TPD, Trauma and Income Protection Insurances, you are unable to nominate a beneficiary other than yourself.
SMSF ownership Term Life

TPD (any, home duties, non-working)

Income Protection
Premiums are paid from your SMSF.

If you make salary sacrifice or personal deductible contributions into your SMSF then you are effectively paying the premium in pre-tax dollars.

In the event of a claim, the benefit is paid to the trustee of your SMSF.
Beneficiaries are nominated by way of the Trust Deed.

Policies held within superannuation may be restricted due to SIS legislation relating to the sole purpose test as well as conditions of release.
Superannuation fund ownershipPremiums are paid from your super fund.

If you make salary sacrifice or personal deductible contributions into your super fund then you are effectively paying the premium in pre-tax dollars.

Premiums may be paid annually as a rollover to receive a 15% tax deduction on the premium.

In the event of a claim, the benefit is paid to the trustee of your superannuation fund.
It is important to establish a Binding Death Nomination over your superannuation assets. The person you nominate must be either a dependant or your legal representative.

In regards to TPD Insurance and Income Protection Insurance, you are unable to nominate a beneficiary other than yourself.

TPD Insurance and Ownership Structures

If you work in a qualified specialist occupation, we may recommend that your TPD cover have an “own occupation” definition. TPD with this definition cannot be held within a superannuation fund. However, most insurance companies now offer a “split” policy by which the life insured can hold a self-owned “own occupation” TPD policy  linked to a superannuation owned “any occupation” TPD policy.  In this case, approximately two thirds of the premium is paid from your superannuation fund and approximately one third of the premium is paid by you personally.

                              

Income Protection and Ownership Structures

Although Income Protection cover is available to be held within a superannuation fund, we recommend that this type of cover is Self Owned. There are a number of reasons for this, firstly, in the event of a claim as you are dealing with both superannuation and insurance law, you cannot personally receive more than 100% of your pre-disability income from all sources. Secondly, you may not be able to access the portion of the monthly benefit paid into your super fund until retirement. Therefore, if you rely on this income to meet your ongoing cost of living, this may cause financial stress for you. Further to this, Income Protection policies held within a superannuation fund often provide very basic levels of cover as many ancillary benefits are not available under this ownership structure. Such unavailable benefits include rehabilitation benefits, an accommodation benefit, trauma benefits, specific injury benefits, a bed confinement benefit, etc.

General Advice Disclaimer

General advice warning: The advice provided is general advice only and in preparing it we did not take into account your investment objectives, financial situation or particular needs. Before making an investment decision on the basis of this advice, you should consider how appropriate the advice is to your particular investment needs, and objectives. You should also consider the relevant Product Disclosure Statement before making any decision relating to a financial product.

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