End of financial year insurance strategies

Jun 8, 2017

Tax time is fast approaching and while your investments may be receiving the attention they deserve, there are also some tax-effective strategies worth investigating within your insurance portfolio.

Pre-paying your income protection premiums annually

If you are a health professional who is self-employed or an employee, you can pre-pay your income protection premiums annually. Not only will this allow you to claim a tax deduction upfront and therefore reduce your income tax payable this financial year, many income protection policies charge of up to 8% more to spread payments over the year. As a medical professional, making this easy alteration to your policy could save you thousands of dollars every year.

Purchase life and total and permanent disability cost-effectively through super

If you are eligible to make salary sacrifice contributions to your superannuation, or earn less than 10% of your income from personally earned income as an employee, you could benefit from paying premiums through your super. This strategy is tax effective and will make your premiums more affordable. However, it’s important to note that paying insurance premiums from your super will have an impact on your savings for retirement, so this strategy should be reviewed regularly.

Example

Rosemary is a 43-year-old, self-employed GP earning $200,000 p.a. Her husband Robert is a homemaker looking after their two young children. Rosemary has a current superannuation balance of $180,000 and like many of her colleagues contributes to superannuation when she can by making tax deductible (concessional) contributions. Rosemary is looking to apply for $2,000,000 life cover in order to pay off debt and leave some provision for her children’s education expenses in the event of her death. If we compare funding Rosemary’s life insurance through her super account versus her paying via a conventional stand-alone policy (assuming the same premium) the effect will be as follows;

Gross cost of insurance cover inside and outside super


Rosemary self-employed GP

Fund via personal concessional contributions to super

Fund via non-super (after-tax dollars)

1.Insurance Premium^

$2409.53

$2409.53

2.Tax payable

$361.43*

$2315.04^^

3.Credit for fund deduction

$361.43**

Not available

4.Gross cost to individual (1+2-3)

$2409.53

$4724.57

Amount saved by insuring through super (pre-tax basis) $2315.04

^Based on $2,000,000 Avant Life Insurance annual premium for an insured female, non-smoking GP (non-procedural), aged 44 next birthday and residing in NSW.

^^Income tax = $2409.53 / (1 - 49%) x 49%)

*Contributions tax = $2409.53 x 15%

**Deduction = $2409.53 x 15%. Assumes the super fund can claim a full deduction for the premium.

The end of the financial year is the perfect time to review your risk insurance portfolio. Many doctors won’t have reviewed their cover for several years and the income protection monthly benefit may not be in line with their higher level of income. Why not make the adjustment now? Pre-pay annually, save on your premiums and claim a tax deduction for the current financial year.

To find out more on end of financial year insurance strategies, call Avant Mutual Financial Services* on 1800 128 268.

*Avant Mutual Financial Servicesis a registered business name of Doctors Financial Services Pty Ltd ABN 56 610 510 328 AFSL 487758 (DFS). The information provided here is general advice only and has been prepared without taking into account your objectives, financial situation and needs. You should consider these, having regarding to the appropriateness of this advice and the policy wording and/or PDS for the relevant product (which are available by contacting us on 1800 128 268 or at avantlife@avant.org.au) before deciding to purchase or continuing to hold a policy with us.

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