Tax deductions for insurance premiums – some things to consider

Life Insurance -

The following information is general only and does not constitute tax advice. You should obtain professional tax advice that takes into account your circumstances. 

Life insurance is a broad term that covers different types of policies, including those that provide life cover, income protection, total & permanent disability (TPD) and recovery insurance (also known as trauma insurance). 

The ability to claim a tax deduction for the premiums you pay for insurance depends on the type of cover and whether or not the premiums are paid through your super fund.

Can you claim a tax deduction for premiums paid for income protection insurance?

Generally premiums paid by Australian resident individuals for income protection insurance under a policy they own may be claimed as a tax deduction to the extent that the premiums are paid for benefits that are designed to replace the individual’s lost income.

In the case where your income protection insurance is held instead through your superannuation fund, so that the superannuation fund is the owner of the policy, generally you can make contributions to your fund (e.g. employer or personal contributions), which are then used by the fund to pay for the premiums. The personal contributions to your fund may be claimed as a tax deduction in your tax return but there are caps on the total amount of concessional contributions you can make each year which you need to consider. The superannuation and tax laws are complex and you should obtain professional advice before taking any action. Your fund may be able to claim a deduction in respect of the premiums it pays for the insurance, which it may reflect in your annual superannuation statement. You should seek advice from your superannuation fund about such arrangements.

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Will you pay tax on income protection insurance benefits received?

In the event that you claim on your income protection policy, any income replacement benefits received are generally assessable as income and liable for tax just like your regular income.

Benefits received by individual policy owners from a claim made under other forms of life insurance such as life cover, TPD and recovery (trauma) insurance should generally be tax-free. 

Where instead such a policy is held by a superannuation fund, the tax treatment of the insurance benefits paid from the superannuation fund to the individual will depend on a number of factors, including the type of insurance claim, whether the recipient of a death benefit is a dependant of the life insured for tax purposes and the life insured’s age at the time of claim for a TPD benefit. 

Why you should always speak to a professional tax adviser

Australian tax law is complex and your treatment will vary depending on your individual circumstances. To make the most informed tax decisions based on your circumstances you should seek professional advice from a registered tax agent or registered tax adviser.

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This information is of a general nature only and does not take into account your personal financial situation, needs or objectives. For this reason, you should consider the appropriateness of this information, having regard to your personal financial situation, needs and objectives, and read the relevant Product Disclosure Statement (PDS) before you decide to buy or to continue to hold a life insurance or superannuation product. The TAL Lifetime Protection PDS is available from tal.com.au

Information provided in respect of taxation law is given in good faith and for the general information purposes of Australian tax residents only. It is believed to be accurate as at 01 July 2020 but may be subject to change. TAL is not liable for any losses that may arise from reliance on this information. TAL does not give, and does not purport to give, any tax advice. As the application of tax law depends on each person’s individual circumstances, you should always seek advice from a qualified tax professional. 
This document is issued by TAL Direct Pty Limited ABN 39 084 666 017, AFSL 243260. TAL Lifetime Protection is issued by TAL Life Limited ABN 70 050 109 450, AFSL 237848.

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