- Tax-deductible life insurance premiums (73%)
- Tax levy for those who don't have a minimum level of cover (17%)
- Pay all life insurance premiums from superannuation accounts (6%)
- Not sure (4%)
Recent research released by the Financial Services Council in conjunction with MetLife has added to a growing chorus of calls to make the cost of life insurance tax deductible.
Our latest poll is asking you to cast your vote as to how you would most prefer to see tax-deductible life insurance implemented.
The general argument for making the cost of life insurance tax deductible is that the associated loss in federal income tax revenue will be more than compensated by the long-term reduction in the level of pensions, social security payments and other government benefits made to those who cannot afford a basic lifestyle without that assistance. If the cost of life insurance is made tax-deductible, it is argued, more Australians would hold appropriate lump sum and income protection insurance cover, meaning fewer would have to rely or rely as heavily, on the Government to make ends meet.
The FSC/MetLife research (see: Underinsurance – Apathy the Real Enemy) found the top messages that resonated with non-life insurance policy holders included the future prospect of life insurance tax incentives and disincentives (the carrot and the stick). The ‘carrot’ argument supports the notion that consumers will be motivated to take out life insurance because of the opportunity it would provide them to reduce their level of income tax.
… the ‘stick’ approach argues the most effective way to ensure more Australians take out minimum levels of life cover is to penalise those who don’t
Meanwhile, the ‘stick’ approach argues the most effective way to ensure more Australians take out minimum levels of life cover is to penalise those who don’t. This is the same argument that currently applies to the private health insurance sector, where those individuals or couples earning above certain income levels are required to pay an additional Medicare levy if they do not hold private health insurance cover.
The research found there is also a third option that resonates with non life insurance policy holders, namely the opportunity to deduct the cost of life insurance from consumers’ superannuation accounts, thus removing the need for the client to find additional funding, either cash or credit, to pay for their premiums.
Each of these three options have their supporters and their detractors. For example, some sectors would strongly advocate against even the remotest possibility of using superannuation account balances to fund all life insurance costs, while others would argue the Government is not in a position to offer any tax relief, given the current large deficit in the National Accounts. So, we are gazing into only one possible future where life insurance premiums (outside superannuation) will become tax-deductible. But, if that future arrives, which would be your preferred model? Why? Let us know what you think…
Tax Deductions are a huge motivator for people to take action and will be a double win for the Government and all Australians if Non Super Life insurance products were given a set amount of the premiums that could be claimed.
Obviously a unlimited deduction would be preferred, though this is unrealistic with the current deficits we are running, though a small deduction up to $3000 ( on top of a $2000 deduction for a plan preparation fee ) would not be a burden, it would save the Government Billions. WHY?
The apathy around Life Insurance will always be here and the down side to packaging as much Insurance as possible into Superannuation, will be a multi Billion dollar reduction in account balances at retirement, which will impact on the Governments pension payments, which will rise.
Why do you think people lose their life savings in crazy investment schemes?
The main motivator is the Tax deduction and a vain hope they will strike it rich.
I can guarantee that if the Government allows the small Tax deductions I have outlined, the rewards in Life Insurance sales and the protection put into place, will far outweigh the short term tax revenue loss.
Every week all across Australia, someone dies or becomes disabled leaving a family in dire financial straits, But with a modest insurance plan (and don’t get me started on the rubbish job the ISN does in this area) properly constructed with sound advice much or most of this pain might be avoided.
Instead we are confronted with ideologue instead of real solutions from the political left , who seem hell bent on making it as difficult as possible for the lower income group in Australia to access sound financial advice (Rant Over !!)
Hold it!
Who thinks that a Tax Ded for non-super life cover WILL NOT result in the ATO taxing the benefit.
Death duties by another name
Doesn’t anyone in the FSC remember we used to have a $1200pa tax deduction in the 1980’s. Those who do will also remember the grief and angst when Keating took it away, but the roof did not fall in
And inherent in that proposal is yet another threat to the longevity of IFA advisers, because the banks and their insurers will direct market their joint client base, including small business. Accountants will be back flogging insurance policies on the tax deduction, not need.
We don’t need props if we give good advice and some of us upskill our selling skills
I’m with you Bill , and Tania
There is NEVER a free lunch! It would only be a matter of time when further funds are needed at a federal level (like now) and bingo, tax on ALL life insurance proceeds are on the table. OMG another level of complexity to boot.
No wonder the population is underinsured, they think they have cover in their super thanks to union fund propaganda – lets not go to the shortcomings here… they think the NDIS will pay up if they’re severely injured; they think they can rely of social security if out of work or injured…. they think workers comp will pay forever if they have work injury; they think they have transport accident protection if they have car accident; they think they can sue if they fall in the street… all of these schemes are available – in part! … the list goes on…
Insurance and superannuation is so complex only those in the industry can possibly know what to do with certainty. Most people switch off when matters become technical…our job is to keep it simple so as understood.
Simplicity is needed – not even more complexity – so the main stream population can make decisions about their future with some degree of certainty – currently the goal posts move about constantly, and grandfathering provisions applying in every aspect of financial planning (including Taxation)
Just my thoughts on the matter – will hop off the soap box now 🙂
Cheers
A tax deduction for the insurance may get people to take out more cover, but there is already a tax deduction for Income Protection. People will still need to find the money to pay for the cover before getting the deduction and if they couldn’t afford (or want to pay for it) it before, what makes them want to do it now. Also tax deductions are based on marginal rates, they may not get much back.
You can already pay Life, TPD & Income Protection through Superannuation, so this option really does not change anything.
I think the better option would be tax deductible financial advice up to a certain limit. This will allow consumers to seek advice and no doubt insurance will be a large part of that advice but will also allow people to get access to good advice in other finance areas.
Whatever happened to compulsory Life Insurance as requested by lenders when individuals had large and second mortgages?
When Life Insurance policies were assigned to the bank? – I haven’t seen these for about 10 years -They were done away with by the big Lenders in the chase for profits.(Before the GFC)
Basic Life policies to cover mortgages should be compulsory – if you are uninsurable due to ill health then the loan will fall over sooner rather than later anyway, so if you cant get cover you cant get a loan!
Other countries do it!
Good advice and upselling will always prevail – but the masses need to get in-front of an adviser first, Insurance companies are very good at telling advisers Australians are underinsured – but very few are prepared to market the services of advisers publicly in marketing campaigns. The only marketing to the general public is the direct insurer’s – no wonder Australians are misinformed!
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