With the end of financial year and 1 July superannuation reforms fast approaching, advisers shouldn't overlook the value of life insurance arrangements inside superannuation.
Keeping in mind concessional and non-concessional contribution limits are reducing, and a transfer balance cap will be introduced, it'll be harder to maintain retirement savings plans - in conjunction with funding insurance inside super through contributions, BT senior manager of product technical life insurance, Rachel Leong said.
If insurance is held inside super - and a member is accessing the tax advantages of funding policies through concessional contributions (provided contributions exceed $25,000) - advisers should be mindful that the benefits may be much smaller prior to the 2017 financial year.
Clients receiving regular payments in the form of an income stream can still be valuable, especially when holding insurance inside super to retain any claims proceeds given the tax concessions available, Leong noted.
However, the amount that can be used to commence a pension "under the new transfer balance cap rules varies when insurance is involved."
"For permanent disability pensions, it may depend on whether insurance is offered in accumulation or pension phase. If a death benefit pension is paid, it may depend on who receives the pension, what type of death benefit pension it is, how many beneficiaries there are in total, or the amount of retirement phase interest that the deceased parent had at the date of their death," Leong said.
She added that from 1 July 2017, personal contributions into super can be claimed as a tax deduction, regardless of where income is sourced.
"While the tax benefits are the same as salary sacrificing, having access to this option will allow employees to fund insurance using pre-tax dollars, when they are not able to salary sacrifice. As salary sacrifice arrangements must be agreed to by the employee and employer, this can sometimes prove difficult, especially when the amounts vary each year - as they generally do with life insurance," Leong said.
Leong added insurance advice should be flexible enough to provide appropriate and easy solutions at any time, with some policies allowing increases to covers periodically such as every three years.
The sum insured under the Future Insurability Benefit for instance, can be increased without further medical underwriting when certain life events occur such as marriage, birth, taking out or increasing a mortgage, salary increase or death of a spouse, she said.