Both self-employed business owners and employees who are eligible to claim a tax deduction for superannuation contributions, or who can salary sacrifice, should consider having their life insurance policy owned by their superannuation fund.

This is attractive as the superannuation fund receives a tax deduction for the life insurance policy costs. In contrast, life insurance policy costs paid by an individual are non- deductible.

Upon death, the proceeds of the life insurance policy are paid directly to the superannuation fund (as the policy owner). The amount is allocated to the member’s account as a taxable component.

The ideal is to have the death benefit paid to a death benefit dependent as then the lump sum is tax free.

A deceased person has the following death benefit dependents:

  • A spouse.
  • Child under the age of 18.
  • A person who is financially dependent e.g. possibly grandchildren, adult children, etc.
  • A person with whom the deceased had an ‘interdependency relationship’ e.g. close friends sharing a house.

If the death benefit is paid to adult children the lump sum is taxed at 17%.


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