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Is life insurance tax deductible?

Most life insurance premiums, such as those held in super funds, aren't tax deductible. But with certain policies you could get some money back.

Most types of life insurance are not tax deductible. This is because, according to the ATO, insurance premiums aren't tax deductible if the policy pays a benefit for physical injury. But there are a couple of exceptions such as income protection and TPD held inside super.

Which types of life insurance are 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; 'benefits' refers to the money you get when an insurer pays out for a claim.

TypeAre premiums tax-deductible?Will I pay tax on benefits?
Life insurance (outside super)
  • No
  • No
Life insurance (inside super)
  • Yes in some cases
  • No
Trauma (outside super)
  • No
  • No
TPD (outside super)
  • No
  • No
TPD (inside super)
  • Yes
  • Yes
Income (outside super)
  • Yes
  • Yes
Income (inside super)
  • Yes
  • Yes

Is life insurance tax deductible through super?

Generally, no. The Australian Taxation Office (ATO) states that premiums on insurance policies taken 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 have through your super is not tax deductible.

However, this may vary 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, TPD and trauma insurance is usually not tax deductible outside of super.

However, the premiums you pay for income protection insurance are tax deductible if you buy the policy outside of your super fund. 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. So that rules out everything except income protection insurance.

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 insurance and total and permanent disability insurance.

The exception is when life insurance is purchased via a super fund and the benefit is paid out 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%.

The 4 main types of life insurance

Shield with tick life insurance icon

Life (or death) insurance

Pays a lump sum to your family if you die. Will usually pay out early if you are diagnosed with a terminal illness.

tpd

TPD insurance

Pays a lump sum if you suffer a severe illness or accident that prevents you from ever working again.

trauma insurance

Trauma insurance

Pays a lump sum if you suffer a major medical event such as a heart attack, cancer or stroke.

income protection

Income protection

Provides regular payments, usually monthly, which replace your income if you're unable to work for a while.

Life insurance 101 guide

Compare life insurance policies outside of super

1 - 8 of 13
Name Product Maximum Cover Maximum Entry Age Terminal Illness Benefit Claims Acceptance Rate Average Claim Time Sum Insured
TAL Accelerated Protection Life Insurance
No set limit
73
Not stated
Data not available
1 months
$249,285 million
Our verdict: One of Australia's leading life insurers. Automatically includes child critical illness cover. Plus, it comes with a level premium option (e.g. costs remain similar as you get older).

⭐ Current offer: Get up to 15% off your TAL Life, Trauma or TPD insurance policy for life - if you have a Body Mass Index (BMI) between 19 and 28 at the time of your application. Offer T&Cs on insurer website apply.
Medibank Life Insurance
$2,500,000
70
$2,500,000
Data not available
Data not available
Data not available
Our verdict: Medibank offers a higher payout limit ($2.5 million) than 15 other providers. Get a 10% discount if you're already a Medibank Health Insurance member.

⭐ Current offer: Save 10% on your first year of Medibank Life Insurance when you apply by 1 July 2024. T&Cs apply.
NobleOak Life Insurance
Finder AwardBonus
NobleOak Life Insurance
$25,000,000
74
$25,000,000
96.90%
1.1 months
$24,483 million
Our verdict: Finder Life Insurance Award winner for the last 5 years in a row. Good value for money, simple application process and a high claims acceptance rate.

⭐ Current offer: Get two months free on all cover types apply by 14 June 2024. T&Cs apply.
RACWA Life Insurance
$25,000,000
74
$25,000,000
96.90%
1.1 months
$24,483 million
Our verdict: RAC’s maximum death cover limit of $25 million is one of the highest limits you’ll find, including $5 million in TPD insurance. You can get an online quote, but you’ll need to call RAC to get trauma cover. Benefit from added peace of mind with fully underwritten insurance. RAC is also WA-based but services all of Australia.
ahm Life Insurance
$1,500,000
55
$1,500,000
Data not available
Data not available
Data not available
Our verdict: ahm offers a simple application process. You can be approved online or over the phone. There are no medical or blood tests needed.

⭐ Current offer: Get 10% off your first year of ahm Life Insurance when you apply by 1 July 2024. T&Cs apply.
Real Family Life Cover
$1,000,000
64
$1,000,000
88.90%
2.4 months
$53,238 million
Our verdict: The application is simple; it can be done with 1 phone call and there are no medical exams. But households with larger debts may need more than a $1 million payout.

⭐ Current offer: Get back 10% of the premiums you’ve paid after 1 year.
AAMI Life Insurance
$1,500,000
65
$1,500,000
Data not available
3.1 months
$37,768 million
Our verdict: There’s flexibility with AAMI as you can add another adult to your cover, with a competitive limit of $1.5 million. Easy application process with no medical exams.

⭐ Current offer: Take out a new AAMI Life Insurance policy and get $100 eGift card after your first 4 months of cover. T&Cs apply. Ends June 30, 2024.
Suncorp Life Insurance
$1,500,000
65
$1,500,000
Data not available
3.1 months
$37,768 million
Our verdict: Competitive maximum cover limit of $1.5 million. Suncorp lets you change your cover amount by up to $100,000 after a big life event, such as having a baby.

⭐ Current offer: Take out a new Suncorp Life Insurance policy and get $100 eGift card after your first 4 months of cover. T&Cs apply. Ends June 30, 2024.
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If you prefer, speak to an insurance specialist to find the best policy for your needs

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4 Responses

    Default Gravatar
    KarlzJuly 8, 2017

    If I am a business owner and have a life insurance policy which is owned by me personally (not the company) but as part of my salary package they fund my insurance premiums; are the premiums deductible to the business and/or do they have to pay FBT?

      Default Gravatar
      JonathanJuly 12, 2017

      Hi Karlz!

      Did you get your life insurance inside a super? If so, yes, you claim these deductions in the income tax return for your business entity or, if you’re a sole trader, in your personal tax return. Providing insurance cover may also be considered as a residual fringe benefit.

      We recommend that you consult a tax adviser on this matter for further assistance.

      Hope this helps.

      Cheers,
      Jonathan

    Default Gravatar
    NICOLAJune 13, 2017

    Are life insurance premiums tax deductible when taken out with a bank to cover Business Loans with that bank.

      AvatarFinder
      DeeJune 13, 2017Finder

      Hi Nicola,

      Thanks for your question.

      Generally, life insurance premiums are not tax deductible, unless it is funded through superannuation.

      Kindly note that this is just a general advice. For your specific situation, you may have to directly get advice from a tax specialist.

      Cheers,
      Anndy

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