Is personal insurance tax-deductible?

Here's a brief overview of when life insurance is and is not tax-deductible. 'Premiums' refers to the monthly (sometimes annual) fee you pay to have a policy, and 'benefits' refers to the money you get when an insurer pays out for a claim.

Is life insurance tax-deductible through super?

Generally, no. The Australian Taxation Office (ATO) states that premiums on insurance policies paid through super accounts are not personally tax-deductible.

This is because the cost of the insurance comes from your superannuation balance, rather than your income. As such, any life insurance you hold through your super is not tax deductible.

This may vary however, if you have a self-managed super fund. To learn more about claiming tax deductions on insurance premiums within a self-managed super fund, it's best to contact a tax accountant or financial adviser.

Is life insurance tax-deductible outside of super?

Usually, no. Life insurances such as death cover, total and permanent disability (TPD) and trauma are generally not tax deductible outside of super.

The premiums you pay for income protection insurance, however, are tax deductible if you fund the policy outside of your super fund (e.g., from your personal bank account). This is because the premiums you are paying relate to your income.

According to the ATO, insurance premiums aren't tax-deductible if the policy pays a benefit for physical injury which rules out all personal insurance except income protection.

Are life insurance benefits taxed in Australia?

This depends on the type of policy you take out. For income protection insurance, it's likely that you'll have to pay tax on the monthly benefits you receive, just like you would with your regular income.

However, other life insurance policies are usually tax free. If the payment is made to a financial dependent, like a spouse or child, it will almost definitely be tax free. This can include life insurance (death cover), trauma and TPD.

The exception to this is when life insurance is owned via a super fund and the benefit is paid to an adult who is not classed as a financial dependant. In that case, the tax-free status could change, and the beneficiary could be taxed up to 30%.

If you want to learn more about Personal Insurance and how it might benefit you, please contact us.