Nick Bruining: How young families could get next-to-free life insurance through the superannuation system

Savvy young couples about to start a family may be able to make use of the superannuation co-contribution system to ensure adequate protection is in place for their expanding family. In some cases, the government could effectively pay for all your life insurance cover. The strategy particularly applies to people who take time off work and might see their incomes decline when they are contractors or part of the gig economy. Independent financial planner Petrese Ivey said a pending birth was an important time to reassess risk and to provide additional insurance cover. “Childbirth itself is still risky but beyond the actual birth, you want to ensure that there’s adequate financial resources available if something terrible happens while they’re still dependent on you,” Ms Ivey said. “Fortunately, the younger you are, the cheaper the cost of life insurance.” Ms Ivey said usually the most cost-effective way was to make use of life insurance products available through your employer superannuation scheme. “While they’re not perfect, you can often make use of ‘life event’ triggers which allow you to increase the cover with minimal or no medical information,” she said. “Ideally, you would want to at least cover all debts and provide a capital lump sum to fund your child’s needs until adulthood.” For example, a 32-year-old white-collar worker could purchase $1.5 million of life and permanent disability cover for about $18.50 a week, or $962 a year, through their super fund. The super co-contribution payment could go a long way to meeting this cost. Provided at least 10 per cent of annual income is derived from employment or business income, the $500 co-contribution payment is available when your current income is less than $43,445. This figure rises to $45,400 on July 1. “If you make a $1000 non-concessional contribution, the government will chip in another $500,” Ms Ivey said. “If your employer’s compulsory super was paid in too, you might also get a refund of up to $500 of the 15 per cent contributions tax taken out.” For this tax refund to apply, total income for the year would need to be less than $37,000 and it is paid to your super fund, not you. “If you’re eligible for both, you’ve basically got the government paying for your life insurance cover while you get used to your new family,” Ms Ivey said. The 10 per cent income test would need to be satisfied each financial year you hope to receive a co-contribution payment. Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association