Did you know that there are some forms of trade insurance which can be paid for through your superannuation?

All business owners, tradies and otherwise, are looking for ways to improve their cashflow, and placing your insurance within your super could be a option worth considering.

Not all forms of cover can be placed within super, and in this guide we’ll take a look at what’s in and what’s out, along with the consequences of structuring your insurance in this way.

How Does It Work?

Each insurance policy you hold will have an owner. Your public liability will often be owned by your company, and your income protection will generally be owned by yourself personally.

The ownership of the policy is also linked to the way the policy is paid for. For example your public liability will be paid for by your company, and your income protection will be paid from your personal funds.

A super fund can also own certain forms of insurance, including income protection, life and TPD insurance for tradies.

In this instance your super fund will own the policy, which in turn means that your super fund will also pay the premiums for the insurance.

When your super fund owns your policy it also means that any insurance payout will be made to your super fund. Provided that the reason for the claim matches up with a superannuation release condition the funds can then be released from your super to you.

The Benefits

The major benefit for most tradesmen comes through improved cashflow. Instead of having to pay for their income protection and life insurance from their own income, they can use their retirement savings to pay the premiums instead.

Another benefit is the tax treatment of the premiums. Income protection premiums are always tax deductible regardless, however life insurance and TPD insurance premiums are not tax deductible.

By paying these premiums from your super fund you are effectively paying for them out of pre-tax dollars.

There are also some disadvantages to this structure. For starters, you will be diminishing your retirement savings by having your insurance premiums deducted.

Additionally there are some restrictions on the cover you can obtain when it is placed within super. We will cover these issues below under each form of insurance.

What’s Allowed?

The three forms of insurance which can be owned by your super fund are income protection, life and TPD insurance. These are all considered to be forms of personal insurance.

Unfortunately business insurance, such as public liability and tool insurance cannot be included with your super.

We will go into the three forms of trade insurance below which can be held within a superannuation fund.

Income Protection

Income protection is a popular form of insurance for tradesmen, and given that the premiums aren’t especially ‘cheap’ it is also a popular candidate for holding within super.

Over the years there have been plenty of additional benefits added into income protection policies, but not all of these are available when your policy is owned by your super fund.

Holding you income protection within super can be great for cashflow, but there are some consequences which you should definitely speak with your insurance adviser about.

Life Insurance

Unlike income protection, life insurance is very straightforward when it comes to holding the cover within superannuation.

Your life insurance policy will payout if you die or suffer a terminal illness, and the release funds for super are virtually identical.

This means that if you die or suffer a terminal illness your life insurance proceeds will be paid to your super fund, and your fund will then be able to release those funds to you or your beneficiaries.

TPD Insurance

TPD insurance is also relatively straightforward, but only when selecting the ‘any occupation’ definition for your cover.

For more information about the definitions available please visit our dedicated TPD insurance page.

Advice Warning

Holding any of your trade insurance policies within superannuation brings along certain complexities which need to be carefully considered before going down this path.

Before taking out any insurance through super you should first speak with a qualified financial adviser who will be able to discuss all of the consequences with you, and ultimately will be able to advise you whether or not it may be right for you.