Favorable tax treatment provided by legislation, such as the 15% tax rate on superannuation contributions compared to marginal tax rates up to 47%. This makes superannuation-based insurance tax-effective.
Concessional tax treatment is a lower tax rate or deferred tax outcome granted by legislation, compared to standard marginal-rate treatment. For insurance, the main example is super-held cover where contributions funding premiums are taxed at 15% rather than your marginal rate.
The treatment is not a free pass: in many cases the concession during accumulation is partially recovered when benefits are paid, particularly on super death benefits to non-dependants.
| Setting | Concession | Trade-off | |---|---|---| | Super-held cover (premiums) | Contributions taxed at 15% in fund | Counts toward concessional contributions cap | | Personally held income protection | Premium deductible at marginal rate | Benefits taxable as ordinary income | | Self-employed personal super contributions | Deduction at marginal rate | Counts toward concessional cap; 15% contribution tax in fund | | Salary sacrifice for income protection | Premium paid pre-tax | FBT may apply to some structures |
For a non-dependant beneficiary of a super death benefit, the taxable component is taxed at 17% (15% + 2% Medicare). Compare this to retail life insurance held outside super, which pays tax-free to any beneficiary.
The choice between super-held and retail cover depends on:
This is general information. The right structure depends on individual circumstances. Authority: Income Tax Assessment Act 1997, Division 291 (concessional contributions) and Division 293 (high-income additional tax).
Emma earns $180,000 (47% marginal rate). She salary sacrifices $5,000 for super insurance. The contribution is taxed at 15% ($750), compared to $2,350 tax if received as salary, saving $1,600. However, if she dies and her adult son inherits, he may pay 17% tax on benefits.
David pays $3,000 retail income protection premiums from salary. He earns approximately $4,286 (at 30% tax rate) to have $3,000 after tax. He claims the $3,000 as a deduction, recovering the $900 tax, effectively providing concessional treatment on the premium expense.
Rachel, on a 37% marginal rate, has $2,000 in super insurance costs. The concessional contribution tax treatment means the contributions funding this cost were taxed at 15% ($176), compared to $740 if paid from after-tax salary, a net benefit of $564 annually.
Get indicative insurance quotes from 9+ leading Australian insurers.
Explore related insurance concepts