Q6: Application Question – Life insurance in superannuation a. If a term life insurance premium is...

Q6: Application Question – Life insurance in superannuation
a. If a term life insurance premium is $1000 and the client decides to pay their premium out of after-tax dollars how much pre-tax income will an individual need if their marginal tax rate is: (1) 0% (2) 19.0% (3) 32.5% (4) 37.0% (5) 45.0%

b. If a term life insurance premium is $1000, how much pre-tax income will an individual need if they decide to salary sacrifice their premium into superannuation?

c. Besides the cost differential between (a) and (b), what are the advantages/disadvantages of paying term life insurance premiums through a superannuation fund versus paying for them out of after-tax dollars?
Learning objective 4

Solutions

Expert Solution

a) If a term life insurance premium is $1000 and the client decides to pay their premium out of after-tax dollars how much pre-tax income will an individual need if their marginal tax rate is: (1) 0% (2) 19.0% (3) 32.5% (4) 37.0% (5) 45.0%

(1) 0%: $1000/ (1-0.0000) = $1000.00

(2) 19.0%: $1000/ (1-0.1900) = $1234.56

(3) 32.5%: $1000/ (1-0.3250) = $1481.48

(4) 37%: $1000/ (1-0.3700) = $1587.30

(5) 45.0%: $1000/ (1-0.4500) = $1818.18

b) If a term life insurance premium is $1000, how much pre-tax income will an individual need if they decide to salary sacrifice their premium into superannuation?

S1000 pre-tax income is needed if they decided to salary sacrifice their premium into superannuation.

The advantage of paying term life insurance premiums through a superannuation fund is

More manageable.
There is tax benefit to hold life insurance in superannuation.
It is cheaper

The advantage of paying term life insurance premiums through a superannuation fund is

It reduces the retirement balance

ekkarill92 answered 1 year ago

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