It is important to work out individually what you need to protect and how much cover you need. But the lump sum payment can be used for goals such as:
Without insurance, your family or dependants may need to run down their savings, sell assets, and/or rely on family or Centrelink for assistance. They may also find it difficult to maintain their standard of living.
Owning your life insurance in your own name means you pay the premium from your cashflow and the proceeds are paid to your nominated beneficiary or to your estate. Self-ownership gives you control over the policy, the right to nominate who receives the proceeds and the right to cancel if the need arises. The premiums for self-owned life insurance are not tax deductible but then the benefits paid are tax-free.
This structure may suit if you want the benefits to bypass your estate so you can be certain that they are paid directly to your nominated beneficiary.
Alternatively, you can apply for cover to be owned within the superannuation environment. This allows the premium to be paid by making contributions to super or simply be deducted from your superannuation account balance so it does not affect your cashflow.
In the event of your death, the insurance proceeds will be paid into the superannuation fund. The trustees of the fund will then pay a death benefit to your beneficiaries or estate. You may be able to make a binding nomination to ensure the trustees pay in accordance with your wishes. Tax may be payable on the death benefit depending on how the benefit is paid (lump sum or pension), who the beneficiary is and the age of the beneficiary. This can make superannuation ownership a less tax-effective method of policy ownership.
Superannuation ownership may be suitable for you if you do not have the cashflow to make the premium payments, receive contributions from an employer into superannuation, are eligible to make salary sacrifice or personal contributions, have a spouse on a low income or are eligible for co-contributions, or are self-employed. Tax concessions can reduce the cost of insurance and may enable certain beneficiaries to receive all or some of the death benefit as a tax-effective income stream. If additional contributions are made into superannuation to cover premiums it is important to ensure you do not exceed the limits on how much can be contributed.
