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.

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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

Not sure what the different types of life insurance are? Here's a list of them and what they protect you for.

Type of policyWhat it does
Fracture Life (or death) insurancePays a lump sum to your family if you die. Will usually pay out early if you are diagnosed with a terminal illness.
Fracture TPD insurancePays a lump sum if you suffer a severe illness or accident that prevents you from ever working again.
User Trauma insurancePays a lump sum if you suffer a major medical event such as a heart attack, cancer or stroke.
Income protection Income protectionProvides 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

Name Product Maximum cover Maximum Entry Age Fully Underwritten? Terminal Illness Benefit Optional Extras
NobleOak Life Insurance
$15,000,000
69
$3,000,000
TPD cover, Trauma cover
Cover up to $15,000,000 with NobleOak Life Insurance.
Real Family Life Cover
$1,000,000
64
$1,000,000
TPD cover, Trauma cover
Get a refund of 10% of the premiums you've paid (in the first 12 months) with The Real Reward™ .
Medibank Life Insurance
$2,500,000
70
$2,500,000
TPD cover, Trauma cover
Medibank health members save 10% on premiums every year. T&Cs apply.
Zurich Ezicover Life Insurance
$1,500,000
69
$1,500,000
No optional
Get your first month free and a 10% discount by taking out a second life insurance policy (discount applies to the second policy). T&C’s apply.
ahm Life Insurance
$1,500,000
65
$1,500,000
TPD cover, Trauma cover
ahm Health members can save 10% off premiums.
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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 Customer Care
      DeeJune 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

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