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Life Insurance and Tax

Are life insurance premiums tax-deductible?

Life insurance products come in many different forms. Whether your premiums are tax deductible primarily depends on:

  1. The type of life insurance you have
  2. If you have a standalone policy or one funded through superannuation

How is life insurance is taxed in Australia?

Find out how tax is treated for life insurance premiums and benefits:

Type of life insuranceAre premiums tax-deductible?Will I pay tax on benefits?
Bought outside of super
  • No
  • No
Policy inside super
  • Yes (if you're self-employed)
  • No (if the beneficiary is a financial dependant)

What about trauma, TPD and income protection?

 TypeAre premiums tax-deductible?Will I pay tax on benefits?
Trauma (Outside super)NoYes
TPD (Outside super)NoNo
TPD (Super)YesYes
Income (Outside super)YesYes
Income (Inside super)Yes (if you're self-employed)Yes (for self-employed policyholders)

*Trauma insurance is no longer available through superannuation.

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Life insurance tax overview

is-income-protection-insurance-tax-deductibleLife insurance is it tax deductible? The answer is sometimes ... the answer is complicated. Generally, income protection insurance policy premiums are tax deductible. Trauma insurance or diagnosis insurance cover is not tax deductible. Life insurance and total and permanent disability (TPD) insurance when taken out separately on a standalone is also not tax deductible.

However, if you have a superannuation fund through your employer or if you are self-employed, then life insurance and TPD might become tax deductible. For income protection insurance, the premiums are always tax deductible whether it is a standalone policy or under superannuation.

Life insurance options that are tax deductible

If you want to take advantage of tax benefits when paying insurance premiums, you need to understand the types of life insurance that are tax deductible. Life insurance is an umbrella term. There are additional options available with term life insurance policies including total and permanent disability (TPD), income protection and trauma cover.

  • Generally, income protection insurance is tax deductible whether taken out as a standalone policy or under your super.
  • Life insurance, trauma and TPD are only tax deductible when taken within the superannuation policy and trauma cover is not tax deductible.

Is life insurance through superannuation tax deductible?

  • Premium payment may be tax deductible

It is important to remember that the default life cover provided through super funds is in most cases just basic cover and may not provide an adequate level of protection when it comes time to claim. It should also be noted that the benefit payment of policies can be subject to tax if the beneficiaries are not financial dependents. This includes:

  • Not a spouse
  • Over 18 years old
  • Not financially dependent on the policyholder

If any of the above applies, the benefit can be subject to a tax has high as 16.5%.

Concessional Contributions

In order to benefit from tax deduction on the cost of life insurance held within your superannuation, the premiums have to be paid by the fund through in what is known as a concessional contribution. This simply means it has to be a pre-tax contribution.

There are some conditions and restrictions after the age of 65:

Concessional caps

Income Tax YearAge
Under 50Age 50 to 5959 years
or over on
30 June 2013
49 years
or over on
30 June 2014
2015-16$30,000$35,000
2014-15$30,000**$35,000$35,000**$35,000
2013-14$25,000$25,000**$35,000

You will need to be clear how much you can contribute to your superannuation so that all the rules governing your fund are complied with.

Although you should go to an experienced financial or taxation adviser to obtain qualified information on your life insurance tax deductibility in your individual situation, in most cases you are generally unable to claim any deductions off your taxation liabilities for any life insurance premiums you had paid in the previous financial year. The same applies to premiums paid for critical care insurance or trauma insurance, in fact any total and personal disablement type of insurance. On the other hand premiums paid for income protection policies are fully claimable and the benefits are taxable as part of your normal taxable income.

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DISCLAIMER: This article contains general advice and does not consider your own personal circumstances. It is not tax advice and the general nature of this material may not be applicable to you. You should obtain professional advice and verify our interpretation before relying on the information contained in our article.
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