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.
We’re reader-supported and may be paid when you visit links to partner sites. We don’t compare all products in the market, but we’re working on it!
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.
| Type | Are premiums tax-deductible? | Will I pay tax on benefits? |
|---|---|---|
| Life insurance (outside super) |
|
|
| Life insurance (inside super) |
|
|
| Trauma (outside super) |
|
|
| TPD (outside super) |
|
|
| TPD (inside super) |
|
|
| Income (outside super) |
|
|
| Income (inside super) |
|
|
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 policy | What it does |
|---|---|
 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 insurance | Pays a lump sum if you suffer a severe illness or accident that prevents you from ever working again. |
 Trauma insurance | Pays a lump sum if you suffer a major medical event such as a heart attack, cancer or stroke. |
 Income protection | Provides regular payments, usually monthly, which replace your income if you're unable to work for a while. |
Compare life insurance policies outside of super
If you prefer, speak to an insurance specialist to find the best policy for your needs
An adviser can help you find cover from trusted life insurance brands.
- Get competitive quotes from multiple brands
- Lower rate of declined claims (according to ASIC)
- Save time and effort
More guides on Finder
-
N95 vs KN95 face masks: What’s the difference?
It can be confusing knowing the difference between a KN95 and N95 face mask. We look at them both and where to buy them online.
-
9 tips for founders I learned from launching a startup in a pandemic
Here’s what Ryan Edwards-Pritchard learned so far about building a startup in the grips of a pandemic.
-
How to watch Arsenal vs Liverpool in the Carabao Cup live and free in Australia
Arsenal and Liverpool are locked at 0-0 ahead of their Carabao Cup semi-final second leg this week.
-
Australian rapid antigen test statistics
Heres how stock levels and prices are holding up for RATs in Australia.
-
How to Stake Olympus DAO (OHM)
Learn how to stake OHM and receive high yield from one of DeFi's most ambitious experiments.
-
Retroactive airdrop farming: How to prepare yourself for 2022
Being early to a new DeFi ecosystem can be very profitable – here's how to game the system and potentially earn yourself some tokens.
-
What is reporting season and why does it matter to investors?
Reporting season is a 2-week or so period where investors can see the results for a large number of publicly traded companies.
-
Bank First Green Personal Loan review
Bank First’s variable rate green personal loan can be used to make environmentally friendly purchases for your home.
-
Today’s ASX top stocks: Blackstone Minerals (BSX ↑12.7%), Weebit Nano (WBT ↑9.7%)
The 10 biggest movers on the ASX for Thursday 20 January 2022.
Ask an Expert
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?
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
Are life insurance premiums tax deductible when taken out with a bank to cover Business Loans with that bank.
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