Life insurance is a must for all individuals who earn income and are the primary bread winners of their family. This being said, many self employed individuals hesitate to get a life insurance plan for two reasons. The first reason is the, added cost for premiums due to their working status and the second reason, is the uncertainty of life insurance plans being tax deductible.
Before deciding if life insurance plans are ideal for you and your family or not, you should go through the following paragraphs and understand how to get maximum benefits from life insurance plans.
Superannuation for Self Employed
- If you want life insurance premiums that are tax deductible then you should consider getting a life insurance plan through your superannuation fund. Although it is not mandatory for self employed professionals to contribute to a super fund, doing so is definitely one of the best ways to save for your future in an organized manner.
- A very good reason to start saving in superannuation funds and to take out a life insurance policy from this fund is, from July 2007 many self employed individuals are eligible to claim the maximum deduction on any contributions made to their superannuation funds. This benefit is applicable to self employed individuals up till they are 75 years old.
- It should be noted that taking a life insurance plan from your super funds has another benefit, which is affordable premiums as compared to a standalone policy taken out of superannuation funds.
Tax Deductible Life Insurance for Self Employed
- Income protection, TPD and trauma insurance plans also fall under the life insurance bracket. Income protection plans when taken as standalone plans are tax deductible. These plans are also tax deductible when taken under your super fund.
- It should be noted that when income protection plans are taken along with TPD or trauma insurance plans as add on plans then income protection plans are not tax deductible since the compensation paid for both TPD and trauma insurance plans are not tax free.
Understanding the Tax implications of Life Insurance Options
- Most people find this topic confusing hence to make things easy it is important to remember 1 golden rule. This rule is that when purchasing life insurance plans or other plans under the life insurance bracket is that, if you opt for a tax deductible plan then your take home salary will be higher which means you will have more money to either spend or save. Insurance plans when taken under superannuation funds ensure that the person gets adequate insurance and saves money simultaneously hence in the bigger picture these plans are more beneficial than stand alone plans.
- You should also remember that irrespective of the tax benefits of life insurance plans, having an income protection plan, TPD and trauma insurance plan can be very beneficial especially if you want to protect your family financially when you are completely disabled, unable to work due to health reasons or certain other reasons.