Life insurance can ensure your family’s financial security in the event of your sudden death.
It is a contract pursuant to which the insurer promises to pay a beneficiary you nominate an agreed sum of money upon your death.
Usually, you would own your own policy and nominate your spouse, partner and/or children as the beneficiaries in defined proportions. However, the policy on your life can be held by others (such as your spouse) or by a business or owners of a business (as detailed below).
Life insurance can help fund a buy out of a deceased’s interest in a business (see below).
HOW CAN FUNDING IT THROUGH SUPER HELP?
Depending on your circumstances and your marginal tax rate, it can be beneficial to hold a policy within a superannuation fund as you may benefit from available taxation advantages.
Life insurance premiums are not of themselves tax deductible however, where a policy is held inside super, the premiums can be paid from the superannuation balance held such that the premiums paid are contributions to super and are taxed as such.
WHAT DOES IT COST?
We would need to discuss this with you and provide quotes but surprisingly, it is not expensive at all. Consider how much you pay to insure your car when considering a quote.
Although different insurers might charge different premiums for similar products, we only recommend quality insurers that carry out “underwriting” up front.
This is where the insurer considers your full medical history before deciding to insure you – the point being that if they have done this, a claim is unlikely to be rejected on your death. The insured has a duty of full disclosure and less reputable insurers can reject claims on the basis of non-disclosure.
KEY MAN INSURANCE & BUY / SELL AGREEMENTS
Where people are fundamental to the ongoing viability of a business, often the business or the stakeholders in the business choose to take out a life insurance policy on that key person in case something happens to them.
The policy can either fund the business in acquiring a new team member to fill the deceased person’s role or can fund the other owners in buying out the deceased’s share in the business, using the policy benefit to pay out the deceased’s estate as part of a buy/sell agreement or similar provisions in a partnership or shareholders agreement.
WANT MORE INFORMATION?
For more information on personal insurances and the types of cover that are suitable for your needs or those of your business, please contact Fionne McKillop at McKillop Financial Planning on (02) 9542 2904 or email email@example.com
Fionne McKillop is principal financial planner at McKillop Financial Planning and owns her own law firm McKillop Legal, which is expert in estate planning, business succession and commercial law.
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This article was prepared by Integrated Planning Systems Pty Limited ABN 21 051 429 184 trading as McKillop Financial Planning, an Authorised Representative of GWM Adviser Services Limited ABN 96 002 071 749 trading as MLC Financial Planning, Australian Financial Services Licensee, 105 – 153 Miller St, North Sydney NSW 2060, a member of the National Australia Bank Group of companies. The information is current as at 31 August 2016.
The article does not take into account your personal objectives, financial situation or needs. Accordingly, you should consider how appropriate the information is to you with regard to your personal circumstances. You may wish to obtain an adviser’s assistance, tax and/or legal advice to make this assessment. Before buying any financial product, you should read the Product Disclosure Statement (PDS) for that product and consider the contents of the PDS before making a decision about whether to acquire the product.
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