Life insurance and super
HOUSEHOLD expenses seem to just keep on going up, so it is important to look at every avenue to trim your costs and save your personal budget from going into the red.
One of the best ways to do this is to pay your life insurance from superannuation using salary sacrifice. Life insurance is essential for most families but the premiums cannot be claimed as a tax deduction. Therefore, they must come from after tax dollars.
Think about somebody who earns $95,000 a year and who is paying $2,000 a year for their life insurance. Because they are in the 38.5% tax bracket the cost to their salary package of that $2000 premium is actually $3300 when expressed in pre-tax dollars.
A better option would be to increase their salary sacrificed contributions to super by $2,000 a year and then pay the insurance premium out of the super fund. This strategy would cut the cost of their salary package to just $2,000 a year and save them $1,300 in pre-tax dollars.
Take advice before using this strategy - there are heavy penalties for exceeding your superannuation caps and it is also important to have your new life insurance in place before cancelling an existing policy.
Noel Whittaker is a director of Whittaker Macnaught Pty Ltd. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. His email is email@example.com