Life insurance is usually held my people who have dependents and their lifestyle would be negatively impacted if the life insured policy holder was to die. This is quite often parents which kids who are financial dependents. It is also held by couples with an empty nest and a mortgage so that should one partner unexpectedly pass away the surviving partner is able to pay off the mortgage with the sum insured.
Life insurance in Australia should always be held inside superannuation. This is because it is more tax effective. This type of insurance held out side of super is not tax deductible. However the policy can be held inside super and be funded with money which has only been taxed at 15%. This is generally a lot lower rate than most peoples income (taxed at either 31.5% or 39.5%). Therefore over time there can be huge savings through structuring this type of insurance inside super.
Should you only pay 15% in tax (really 16.5% after the Medicare levy is included) you can deposit money into your super and receive the government co-contribution. This way the government is paying for your life insurance policy.
For those who do structure their life insurance inside super should try and contribute at least the cost of the policy into super. This way the insurance premium will not affect your wealth creation and retirement savings. After all, this is why we have super!
For higher income earners structuring your life insurance inside super makes a massive difference. Outside of super you pay 46.5% tax and as mentioned above the premium can be funded using money that has only been taxed at 15%. A huge saving!
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