Life Assurance

Life Assurance – more useful than you might think

Life assurance can be a valuable means of creating a fund to gear against and to accumulate wealth for oneself and the family.  It can work like non-concessional superannuation contributions but without all the restrictions on contribution amounts or withdrawals or tax traps or administrative costs which can apply to self-managed superannuation.  Next to a self-managed superannuation fund, a tailored personal life policy can be a valuable complementary wealth building supplement.

Life assurance (unlike term life insurance) builds up a fund as well as covering against risk of premature death.  While most people think that life assurance is only valuable to their surviving family members, life assurance can help in creating wealth and cash flow for the policyholder now.

This is because policies may be borrowed against and bonuses may often be surrendered free of tax (because the company has already paid the tax).   This is true for polices held by Australian residents for 10 years.  Further, there is generally no capital gains tax on assigning or transferring a life policy.

In addition, the policy can be designed to operate much like a will in that the policyholder may be able to change beneficiaries from time to time or to create a trust over the life policy proceeds.

All this may often be  done with a policy taken out in the policyholder’s home country or taken out with an overseas life office.  For example, given the historical links, there are still many Australians who have UK life assurance polices or policies taken out in places such as Hong Kong or Singapore.

Unfortunately, life assurance has fallen out of favour, mainly because most large insurance companies do not really seem to  care much about their policyholders.  But there are boutique insurance companies which are willing to be more responsive to policyholder requirements.