The FPA has urged the government to apply tax-free benefits to life insurance policies held within super and reiterated it should make upfront financial planning fees tax-deductible.
In a submission regarding the 2016-17 federal budget, the FPA made recommendations that it says address "anomalies and complexities" in the tax treatment of life insurance and, in turn, encourage more Australians to take out coverage.
Those recommendations include making insurance premiums for non-super policies tax-deductible and applying the same tax-free status to policies paid inside superannuation.
"Allowing tax deductibility of insurance premiums for non-super policies will add incentive for Australians to take out life insurances, reducing our documented under-insurance problem in Australia and consequently reducing reliance on government benefits when insurable events occur," the FPA said.
"Determining the taxation consequences of receiving death or TPD benefits from superannuation or an employer is a highly complex task. It is unlikely that any person who is not a tax specialist or financial planner would be able to calculate potential tax payable, or the strategic consequences of decisions they make in relation to where they hold these insurances, how benefits are drawn down in the event of death or TPD and to whom those benefits may be payable.
"The proceeds of a death or TPD policy held outside superannuation is generally paid tax free, so the same tax-free status should apply to policies paid inside superannuation," the submission stated.
At the same time, the FPA reignited its campaign to make financial planning fees tax-deductible, arguing that this will result in more Australians seeking financial advice.
"The inability to claim a tax deduction for the fees associated with an initial financial plan acts as a disincentive for people to take the first step towards organising their finances on a strategic basis," the submission said.
"The federal government can help by including budget measures, which improve affordability and access to financial advice – particularly for the young, those of modest means, and others who are at greater risk of financial exclusion."
Other recommendations in the submission include having a more consistent definition of the word "dependent" for tax and superannuation purposes as well as funding a financial literacy strategy for women.
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