Nick Bruining: Must-know superannuation and tax tricks to help slash your family’s life insurance costs

Like many things in life, you can never have enough life insurance. The difficulty is finding the right balance between what’s needed and how much you can afford.

For most families, it’s a case of identifying and prioritising the risks while sticking to an insurance budget.

The level of life cover should, ideally, reflect any other financial resources you and your loved ones can call on in the event of a catastrophe.

It’s also why for young families the level of recommended cover is much higher than for someone in their late 40s who, hopefully, has children nearing adulthood with their overall wealth increasing.

By the time you hit retirement, when the premiums become very expensive, there should be no need for life insurance cover at all. As a bare minimum, the policy should at least leave your loved ones completely debt-free and with a roof over their heads.

Moneysmart.gov.au provides an excellent insurance calculator tool to work out a more accurate level of cover.

The easiest way to buy cover will be through your employer super fund. That’s because, in most cases, there are few if any medical questions. The downside is that it’s not going to be the cheapest option when compared to a more bespoke personal life insurance policy.

However, done the right way it can effectively become tax-deductible. Your boosted tax refund could more than justify the additional premium costs.

In this case, premiums are actually paid by the super fund on your behalf. You simply need to make additional tax-deductible concessional contributions to super to cover the premium cost. That can be done through a regular salary-sacrifice arrangement or making a one-off concessional super contribution and claiming it as a tax deduction in your tax return at the end of the year. That deduction should result in a boosted tax refund.

Low-income earners who earn at least 10 per cent of their income from employment can use the popular $500 super co-contribution payment to either fully pay or partially offset the premium cost.

Provided your annual taxable income is less than $45,400, paying a $1000 non-concessional contribution — not tax-deductible — to super gets you a matching $500 contribution from the government.

Platform-based superannuation products like wrap-accounts or master trusts generally allow you to access the bespoke personal life insurance cover through them. In this case, however, you will have to factor in the costs of using a financial adviser. The policy will be individually underwritten meaning the premium is tailored to you, rather than the large pool of members making up your employer super scheme.

Further savings can be made using legally independent financial advisers or other advisers who don’t receive commissions, which will typically save you more than 20 per cent a year. As before, the costs of using an adviser will need to be considered in the scheme of things.

When there’s lots of insurance in place, these savings can add up to thousands of dollars a year.

And life insurance is often cheaper than you think.

For a 30-year-old white collar worker, $1 million of death cover through one of Australia’s largest super funds will cost you $4.84 a week — or a little over $250 a year. Add $1m of total and permanent disability cover and the total cost is $11.77 a week — or $612.04 for the year.

Again, pay through tax-deductible super contributions and the out-of-pocket change to your take-home pay is just $9.41 a week.

If you decide not to make additional contributions, the cost of the insurance cover simply comes out of your account balance.

Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association