Life insurance costs
Cost of Life Insurance
The premiums related to life insurance policies will be dependent on your age, health, occupation and cover amount. They may be fixed, remaining the same each year, or they may increase as you age or as your cover increases.
On this page:
When calculating the amount of coverage required you must take into account:
Personal details such as age, sex, smoking status and number dependents
Amount of debt (mortgage, loans, credit cards, etc.)
Expenses (ongoing living expenses, cost of dependents, funeral costs)
Income and assets
The premiums may also be slightly higher for males than females as insurance companies base their premiums off national life insurance statistics. Cover may be taken out for individuals, couples or families. As you age, your premiums may actually increase. Smokers are also charged a higher premium than non-smokers due to the risk their actions are posing to their health.
Cost of funeral insurance
The cost of funeral insurance will be dependent on the amount of cover taken out. Often the premiums may be slightly higher than that of life insurance policies. You can choose the cover amount to suit you, which will require you to consider:
Amount of debt (mortgage, loans, credit cards, etc.)
Income and assets
Cost of the funeral
This can range from approximately $5,000 to upwards of $20,000. As you age, your premiums may actually increase. Furthermore, males tend to pay a higher premium than females as a result of their lower life expectancy. Smokers are also charged a higher premium than non-smokers due to the risk their actions are posing to their health.
Cost of health insurance
The cost of health insurance differs based on the amount of coverage that you have chosen. Health insurance may be taken out for individuals, families, couples, and single parents. Because health insurance covers hospitalisation and extras, the cost of each package will depend on:
The level of hospital cover
Basic
Bronze
Silver
Gold
The amount of extras that you require
Dental
Optical
Physio
Ambulance
Psychology
Podiatry
Chiropractic
Diet
Antenatal and Postnatal care
Occupational therapy
Health aids
Speech and hearing
Cost of hospitalisation and end of life care
The cost of death differs significantly based on where the death occurs. The average cost of an individual over the age of 50 who is admitted to a hospital and consequently dies is approximately $19,000 in Australia. Deaths that occur in residential aged care facilities may be on average approximately half of this cost. The cost of death may also differ based on the amount of treatment and palliative care that has been received by the patient.
Funeral Costs
The average funeral in Australia may cost between $4,000 and $15,000. Because of their customisable nature, the cost of a funeral can differ greatly based on a number of factors. The primary costs involved in funeral planning include:
Funeral director fees (this accounts for a majority of the funeral cost)
Transport
Coffin (the cost of a coffin or casket can range from approximately $800 to over $15,000. This is dependent on the quality and details of the coffin)
Death certificate
Permits
Burial (costs approximately $4,500 in Australia)
A cemetery plot (can range from $10,000 to $20,000 in a high demand area or $2,970 to $4800 on average in a low demand area)
Memorial plaque (this may be included in the cost of the cemetery plot, or may be an additional cost and can range from $1,500 to $3500 for a simple plaque)
Additional expenses (e.g. decorations such as flowers)
Cremation Costs
Cremation is significantly less expensive than burial. Individuals may choose cremation as an alternative to burial, reducing the cost of their funeral as the need for a coffin, the burial and the plots is not required. In Australia, the average cost of cremation is approximately $3,600. The associated costs usually include:
Use of crematorium facilities Staff and labour An urn or vessel to keep the ashes in
Superannuation and Taxes
Superannuation is not considered to be an estate asset. This means that it does not automatically flow to the deceased’s estate. Given that only 55% of Australians have written a will, in all likelihood, the superannuation of someone who passes away will flow to the government, rather than their family and loved ones. This may result in a simple mistake that sends tens of thousands of dollars to the taxman, rather than your family. This page will outline the necessary information to prevent that scenario from occurring, and ensure that your super is directed to your loved ones.
Are my beneficiaries entitled to the balance of my superfund following my death?
In most cases when an individual dies, the super provider will pay the remaining superannuation balance to a nominated beneficiary. This is known as the ‘super death benefit’. You may nominate the beneficiary with your chosen provider, which may be binding or non-binding.
For a binding super death benefit nomination, you may choose one or more dependents or your chosen legal representative to receive your super balance.
If no beneficiary or dependent has been nominated the trustee of the provider can:
Use their discretion to decide which dependent(s) will receive the death benefit balance
Make the payment to the deceased’s legal representative who will distribute the balance in accordance with the written will
If the deceased has made a non-binding death benefit the trustee of the provider can:
Use their discretion to pay the non-binding nomination
Make the payment to the deceased’s legal representative who will distribute the balance in accordance with the written will
Dependents of the deceased may receive the death benefit in a lump sum or income stream. If you are not a dependent of the deceased but have been nominated, the death benefit must be paid in a lump sum.
Who is considered to be a dependant of the deceased?
There are two classes of law that is applicable for superannuation death benefits. The superannuation law is used to determine what a dependent is, and taxation law determines the resulting tax treatment.
According to superannuation law, a dependant is considered to be someone who fits the following criteria at the time of the dependent's death:
Spouse or de-facto spouse
Child of the deceased (any age)
An individual engaged in an interdependent relationship with the
deceased. This is defined by the following criteria:
Close personal relationship
Live together
One or both of them provide financial support to the other
One or both of them provide domestic and care support for the other
For tax purposes, according to taxation law, a dependant is considered to be someone who fits the following criteria at the time of the dependent's death:
Spouse or de-facto spouse
a former spouse or de-facto spouse
A child of the deceased (under the age of 18)
An individual engaged in an interdependent relationship with the deceased. This is defined by the following criteria:
Close personal relationship
Live together
One or both of them provide financial support to the other
One or both of them provide domestic and care support for the other
Any other person who is dependent on the deceased
Not all interdependency relationship criteria must be satisfied if one or both of the individuals have a physical, intellectual, or psychiatric disability.
Children over the age of 18 must be financially dependent on the deceased to be considered a ‘dependant’. Adult children can only receive an income stream if they are under the age of 25 and are financially dependent on the deceased or have some sort of permanent disability. Only adult children over the age of 25 with a permanent disability can continue to receive an income stream following their 25th birthday. All other dependent adult children must receive a lump sum rather than the income stream once they turn 25.
Is there a tax applicable on an inheritance from a super fund to a beneficiary?
The tax on the death benefit will depend on:
Whether you are considered to be a dependant of the deceased under taxation law
Whether the balance will be paid in a lump sum or income stream
Whether the super is tax free or taxable, and whether the provider has paid tax on the taxable component
Your age and the age of the deceased at their passing (applicable for income streams)
To work out how the super pay-out will be taxed, you must know how much of the death benefit is a:
Tax free component
Taxable component (that provider has paid tax on) - the taxed element
Taxable component (that provider has not paid tax on) - untaxed element
You will not need to pay tax on the tax-free component when you withdraw a lump sum or receive an income stream. You will be required to include this in your ‘assessable income’ where you are in receipt of a capped defined benefit stream where the deceased was over the age of 60 and you are over the age of 60, provided that the total of the tax-free benefit and taxed element is in excess of your defined benefit income cap.
You do not need to pay tax on the taxable component of the benefit if you are a dependent that is receiving the death benefit in a lump sum. A dependent that is receiving the death benefit as a capped defined benefit income stream, you will need to pay tax.
Beneficiary is under the age of 60 and deceased was under the age of 60 just prior to death
| Type of Super | Effective Tax Rate (with Medicare Levy) |
|---|---|
| Taxed Element | Regular marginal tax rate – 15% tax offset |
| Untaxed Element | Regular marginal tax rate |
Beneficiary is under the age of 60 and deceased was 60 years or older just prior to death
| Type of Super | Effective Tax Rate (with Medicare Levy) |
|---|---|
| Tax free component and/or taxable component – taxed element above the defined benefit income cap | Half of the amount above the cap is assessed at your regular marginal rate. |
| Tax free component and/or taxable component – taxed element below the defined benefit income cap | No Tax |
| Untaxed element | Regular marginal tax rate less the offset that you are entitled to |
Beneficiary is over the age of 60
| Type of Super | Effective Tax Rate (with Medicare Levy) |
|---|---|
| Tax free component and/or taxable component – taxed element above the defined benefit income cap | Half of the amount above the cap is assessed at your regular marginal rate. |
| Tax free component and/or taxable component – taxed element below the defined benefit income cap | No Tax |
| Untaxed element | Regular marginal tax rate less the offset that you are entitled to |
If you are a dependent that receives a death benefit via an account-based income stream
| Age of beneficiary and deceased | Type of Super | Effective Tax Rate (with Medicare Levy) |
|---|---|---|
| Beneficiary over the age of 60 or deceased over the age of 60 | Tax free component | Tax free |
| Beneficiary over the age of 60 or deceased over the age of 60 | Taxed element | Tax free |
| Beneficiary over the age of 60 or deceased over the age of 60 | Untaxed element | Regular marginal tax rate minus 10% tax offset |
| Beneficiary and deceased were under the age of 60 | Tax free component | Tax free |
| Beneficiary and deceased were under the age of 60 | Taxed element | Regular marginal tax rate minus 15% tax offset |
| Beneficiary and deceased were under the age of 60 | Untaxed element | Regular marginal tax rate |
If you are not a dependant of the deceased and you receive a lump sum death benefit the taxable component of the benefit will be taxed at your marginal tax rate.
Effective tax rate to be paid
| Type of Super | Effective Tax Rate (with Medicare Levy) |
|---|---|
| Taxed Element | Regular marginal tax rate or 17% (whichever is lower) |
| Untaxed Element | Regular marginal tax rate or 32% (whichever is lower) |
Under superannuation law, a non-dependent cannot receive an income stream death benefit.
Alternative arrangements
You may choose to withdraw your super from your chosen fund prior to your death. As a person ages past the age of 65 they may withdraw superannuation funds to accounts held in their name. The money will become part of a non-super estate which is not subject to the tax.
Taxes
Is my inheritance taxed in the process of wealth transference? There are no inheritance or estate taxes in Australia. This means that their estate should not be taxed when distributed among the beneficiaries.
Can I be taxed for assets that I inherit?
The capital gains tax (CGT) may need to be paid in the event that an asset received from an estate goes on to be sold. You may need to pay CGT on the proceeds of the sale.
Will I be taxed on income received from an estate?
Although you are not required to pay tax on inheritance, income acquired as a beneficiary is considered to be ‘normal income’, which means that this could potentially increase the amount of tax that you would have to pay.
Why Consult a Financial Planner?
The costs that arise throughout the aged care journey can be difficult to navigate. Consulting a financial advisor can simplify your experience by organising the various costs and considerations. They deal with a variety of areas such as:
Accomodation payments
Financial modelling of care options
Maximising government funding opportunities and pensions
Minimising nursing home fees
Corresponding with aged care facilities about fees
Reviewing and planning for taxes
Retirement and superannuation
Mortgages
Insurance premiums
How Much Does it Cost to Consult a Financial Planner
Financial advisers require a nominal fee for their services. Different financial advisers will have different costs, which means you may need to shop around to find an affordable adviser that suits your needs.
Finding a Financial Planner:
A financial planner can guide you through this process. Search here to find a financial planner to suit your needs.
