Is Life Insurance Tax Deductible?

The answer to the question ‘is life insurance tax deductible?’ is a complicated one and ultimately, for many people, comes down to whether or not your insurance policy was purchased through superannuation.

If you purchased an insurance policy direct from an insurance provider, premiums on life insurance are not generally tax deductible.

If you’re self-employed and your life insurance policy has been provided through a superannuation fund, any contributions made to fund the insurance premiums are tax deductible.


Are Income Protection, Trauma and TPD Insurance Premiums Tax Deductible?

So, we know where we stand on life insurance, but how about other insurance premiums? Other types of cover that fall under the life insurance umbrella such as income protection, trauma and TPD insurance have different factors involved when it comes to tax deductible premiums.

Trauma insurance is not currently available through superannuation, therefore, the premiums for this are not tax deductible.

TPD insurance is only tax deductible when provided under superannuation.

Income protection insurance mirrors life insurance in that it’s tax deductible under superannuation. A tax deduction also applies for self-employed people who purchase an income protection policy direct from the insurer.


Why Is Life Insurance Tax Deductible?

Life insurance premiums are only tax deductible if they are connected to earning an assessable income or if the monetary benefit is required to carrying on a business so that an assessable income can be earned. As long as the life insurance policy impacts your income, tax deductions will apply.


Why is Income Protection Insurance Tax Deductible?

Tax deductions are possible for income protection insurance premiums because the benefits act as an income replacement.

Any premiums paid for income protection policies can be claimed and the benefits received are taxable as with your normal taxable income.


Will I Pay Tax on Benefits?

If you or your family are eligible to receive benefits after making a claim, whether or not you have to pay tax on those benefits will come down to the type of policy you purchase, how you purchased it and your employment status.

Tax doesn’t need to be paid on life insurance benefits however if the policy is purchased under superannuation, this only applies if the beneficiary is a financial dependant.

TPD is the only other form of insurance where you will not have to pay tax on benefits and this only applies if the policy was purchased outside of superannuation.

TPD insurance provided by superannuation does require tax to be paid on benefits and the same goes for income protection insurance. However, for income protection insurance, this only applies to self-employed policyholders when the policy is held under superannuation.

For income protection and trauma insurance purchased outside super, tax must be paid on all benefits.


Should I get Cover through Superannuation if the Premiums are Tax Deductible?

Just because premiums are tax deductible for a policy available under superannuation, that doesn’t mean the policy is right for you. In most cases, only the basics are covered and the level of protection you receive isn’t adequate.

Do also keep in mind that you will also need to pay tax on life insurance benefits from a superannuation policy if you’re not a financial dependant. When a policy is purchased outside of superannuation, you will not need to pay tax on benefits.


What’s the Best Way to Work Out Tax Deductions for my Insurance?

Speak with an experienced tax or financial adviser to receive qualified information on the status of tax deductibility for your life insurance.

They will be able to recommend the best avenue for you to ensure you get the most benefit possible out of your life insurance policy.


Find Out More About Life Insurance

It’s important that you’re fully informed about the pros and cons of life insurance and the tax deductions you may be able to receive before making a purchase.

Speak with our knowledgeable advisers today on 1300 366 817 or click ‘Get a Quote’ to compare life insurance policies from Australia’s leading insurance providers.

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