No one likes to think about it, but accidents do happen and illness can occur – these can be fatal in some instances.
What would happen to your dependants? Would the family home be secure? Could your dependants live the life you want for them without your income?
Death insurance generally pays a lump sum to the estate of the person who was insured, or it can be paid to a beneficiary. The lump sum can be used for a variety of purposes. For example:
- paying off debts, like mortgages, car loans, and credit cards (this allows your family to rebuild their lives without the additional stress of coping with debt)
- replacing your income so your family's lifestyle can continue with as little disruption as possible
- providing funds for your children's education
- meeting additional expenses (like child care or housekeeping) that may arise.
This list provides a way of estimating how much cover you may need. But if things change in your life (like a new baby, extension to the mortgage, or additional loan), it's important to review the level of cover you hold.
Tips:
- Death insurance premiums vary with your age, sex, and medical history. Other factors insurers consider include your occupation and lifestyle. Generally you will not be able to claim a tax deduction for life insurance premiums.
- Death benefits paid directly to a dependant from a super fund are paid as a tax-free lump sum.
- If you arrange insurance through a super fund, make sure you know who will get the lump sum on your death. Upon your death, QSuper can pay your death benefit to your legal personal representative (e.g. executor of the estate) or another person the QSuper Board determines to be appropriate, subject to Commonwealth legislation. This may include your legal or de facto spouse, your children, a financial dependant, or someone in an interdependent relationship with you.
Tax on payouts
A superannuation death benefit paid to your dependants will be tax-free. A dependant could be your spouse, your dependent children, anyone else financially dependent on you, or someone you live with in an interdependent relationship.
When a death benefit is paid to a non-dependant, the taxable component is usually taxed at either 16.5% or up to 31.5%. If no tax file number is supplied by the non-dependant, the taxable component is taxed at 46.5%.