When you join a fund instead of holding an individual policy, you receive coverage under a trust. This structure guarantees your trauma insurance policy 100%, regardless of changes in your personal or financial circumstances.Your family is then eligible for up to 50% of any investment earnings accumulated by your SMSF account over time without paying taxes on it at all. For example, let’s say your fund earns 10%, which would accumulate $100,000 in profits for you and your loved ones at retirement. The downside is that strict rules surround how much you can contribute to an income protection SMSF per year before being hit with punitive tax penalties of up to 75%.
Consider investing in trauma insurance. If your SMSF is holding cover or considering an SMSF, likely, you are also seeking financial security. To increase your chances of surviving a life-threatening illness or accident, look into trauma insurance for yourself and your family. Trauma cover may help protect you from higher premiums on private health insurance, additional costs associated with treating your illness or injury, and income replacement if you can no longer work. It also includes assistance for your loved ones if they’re caring for you during recovery. Here are the benefits!
Premiums Are Tax-Deductible
Income protection insurance is generally tax-deductible, helping to reduce your current year’s taxable income. In most cases, you can claim a deduction for premiums paid for all years, even if you have not claimed any other claims from that insurer. Many people do not realise that they can claim tax deductions for premiums paid in previous years even though they did not claim at that time. This can help reduce your overall tax payable and also help you get back some of what you have already paid in premiums over time.
The Australian Tax Office (ATO) counts premiums paid for income protection policies as part of your medical expenses, including premiums for accident, sickness, and hospitalization insurance. Unlike health insurance premiums, which your employer usually deducts automatically from your paycheck, you must pay income protection premiums upfront with after-tax dollars. You can choose to pay monthly or annually. If you select the monthly option, many providers rebate up to 10% of your annual premium when you make no claims during the year.
Premiums Are Paid With Members’ Contributions
Although income protection (IP) is not mandatory, it offers valuable peace of mind. It provides a fixed monthly sum if illness or injury prevents you from working, and it may pay an additional lump sum if you die while earning a salary. Young members in lower-paid jobs earning up to $3,000 per month usually pay premiums entirely, including any employer contribution.
Some plans let employers contribute, but employers do not guarantee these payments. If your employer struggles financially and stops paying, you could lose your income protection. In certain situations, your insurer may cover part of the benefits when an employer goes into liquidation, but you should confirm this before taking out coverage. Businesses that go bankrupt do not have a legal obligation to pay insurance premiums for their employees, and insurers do not have to honor claims for any unpaid employer contributions.
Superannuation policies usually include some level of income protection, but you should request a quote for additional coverage, especially if you have dependents. As your super balance grows, so do your income protection policy premiums.