tax-debt-loan

Life Insurance and Tax (ATO Rules)

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 Are premiums tax-deductible? Will I pay tax on benefits?
Policy bought outside of super
  • No
  • No
Cover that's through your super
  • No (if the beneficiary is a financial dependant)

*In some cases your premiums can be funded by pre-tax income (tax-deductible super contributions)

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.

What about trauma, TPD and income protection?

Type Are premiums tax-deductible? Will I pay tax on benefits?
Trauma (outside super) No Yes
TPD (outside super) No No
TPD (super) Yes Yes
Income (outside super) Yes Yes
Income (Inside super) Yes (if you're self-employed) Yes (for self-employed policyholders)

*Trauma insurance is no longer available through superannuation.

Compare quotes for life insurance or income protection

Life insurance options that are tax-deductible

is-income-protection-insurance-tax-deductibleIf 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.

When is life insurance tax-deductible?

  • If the benefit comes as an income stream. Generally, income protection insurance is tax deductible whether taken out as a standalone policy or under your super.
  • Everything else. 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. In some cases, premium payments for life insurance inside superannuation can be tax-deductible.

When is my premium tax-deductible?

Tax is deductible when you pay for your premiums with your pre-tax income. Your super fund can claim a tax deduction on premium payments which is then passed onto you.

How it works

Basically, your fund will claim a tax-deduction when it makes a payment to your life insurance premiums. It will then pass on this benefit to the member by removing any tax that is payable from your super contributions.

Essentially, you will pay for premiums with pre-tax income.

Who can make deductible contributions to my life insurance premiums?

Deductible contributions can be made from your:

  • Employer
  • Yourself (if you are self-employed)


Rules to understand when it comes to pre-tax premium payments

When you pay for your premiums with pre-tax income, this is known as a concessional contribution.

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

Concessional caps

Financial year Under 49 49 to 59 59+
2017/18 $25,000 $25,000 $25,000
2016/17 (Current year) $30,000 $35,000 $35,000
2015/16 $30,000 $35,000 $35,000
2014/15 $30,000 $35,000 $35,000
2013/14 $25,000 $25,000 $35,000
2012/13 $25,000 $25,000 $25,000

Source: ATO. When looking at previous years, consider your age at after 30 June of that financial year.


What are concessional contributions?

In order to benefit from a 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 limits on the amount that can be contributed from pre-tax income before you may be required to pay an "excess contributions tax".

Concessional caps (limits)

Income Tax Year Age
Under 50 Age 50 to 59 59 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.

How are benefits taxed?

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%.

Compare life insurance quotes from these direct brands

Name Product Maximum cover Maximum Entry Age Minimum Sum Insured Guaranteed Future Insurability Expiry Age Short Description
$1,500,000
65
$3,000
No
80
Choice of cover options and flexible premiums to suit your budget. No lock-in contracts and fast application.

$1,500,000
65
$100,000
Yes
99
Tailored life insurance so you know what you're covered for upfront. Take out a policy and get a $100 bonus gift after holding cover for 2 months. T&Cs apply. Ends 31 March 2019.
$1,000,000
65
$100,000
No
No expiry age as long as premiums are paid
Receive one month's premiums off every year if you pay annually upfront. T’s and C’s apply.
$1,500,000
65
$100,000
Yes
No expiry age as long as premiums are paid
Get life cover up to $1.5 million. Plus, Medibank health insurance members can save 10% off premiums.
$1,500,000
69
$50,000
Yes
99
Receive a 10% discount on the second person when two applications are submitted at the same time, and both policies are issued.
$1,000,000
64
$100,000
No
No expiry age as long as premiums are paid
Get a refund of 10% of the premiums you've paid (in the first 12 months) with The Real Reward™.
$1,500,000
64
$100,000
No
No expiry age as long as premiums are paid
Cover up to $1.5 million with Guardian Life Insurance.
$1,500,000
69
$50,000
Yes
99
Get your first month free when you buy HBF Ezicover Life Insurance.
$15,000,000
69
$0
Yes
99
Get a quote for up to $15 million in life insurance cover. Cover can be tailored to meet your personal needs.
$2,000,000
74
$100,000
Yes
99
Join Qantas Life Insurance and earn up to 100,000 Qantas points. T&CS apply including minimum premium and policy hold periods apply to earn points.
$2,000,000
59
$50,000
Yes
99
Get flexible life insurance up to the sum of $2,000,000.

Compare up to 4 providers

Receive life insurance quotes for Australian brands

Please enter your full name
Please enter a valid email address
It's important to give us a valid phone number
Gender
Smoker
Date of Birth
Coverage is the amount of money that you will be paid in the event of a claim. An insurance consultant can help you determine an appropriate amount. Calculator
Provides a lump sum payment if you become totally and permanently disabled and are unable to return to work.
Provides a lump sum payment if you suffer a serious medical condition. Cover can be taken out for 40-60 medical conditions depending on the policy you choose.
By submitting this form, you agree to the finder.com.au privacy policy
Get quotes

Consult a financial planner

Was this content helpful to you? No  Yes

Related Posts

Ask an Expert

You are about to post a question on finder.com.au:

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • finder.com.au is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Finder only provides general advice and factual information, so consider your own circumstances, or seek advice before you decide to act on our content. By submitting a question, you're accepting our Terms of Use, Disclaimer & Privacy Policy and Privacy & Cookies Policy.

4 Responses

  1. 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

  2. Default Gravatar
    NICOLAJune 13, 2017

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

    • finder Customer Care
      LouJune 13, 2017Staff

      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

Ask a question
Go to site