Is Life Insurance Tax Deductible? (ATO rules) | finder.com.au

Are life insurance premiums tax deductible?

We explain when life insurance is tax deductible and reveal which benefits are tax-free 

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Buying life insurance is an important decision but it's not always cheap. It's no surprise then that so many Australians ask whether their life insurance premiums are tax deductible.

Of course, wading through tax regulations can be tiring, not to mention tedious. So we thought we'd help out by breaking it down for you.

Types of life insurance

There are four main types of insurance which generally fall under the umbrella of life insurance. Whether your premium is tax deductible or not will depend on what kind of insurance it is and how you purchased it.

Type of policyWhat it does
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.
TPD insurancePays a lump sum if you suffer a severe illness or accident that prevents you from ever working again.
Trauma insurancePays a lump sum if you suffer a major medical event such as a heart attack, cancer or stroke.
Income protectionProvides regular payments, usually monthly, which replace your income if you're unable to work for a while.

Is life insurance tax deductible through super?

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.

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Fully underwritten with Trauma and TPD options. NobleOak offer up to $15 million maximum cover level.

Is life insurance tax deductible outside of super?

Life insurance, TPD and Trauma insurance are not tax deductible outside of super. However, the premiums you pay for income protection insurance are personally tax deductible, if you buy the policy outside of your super fund.

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?

The type of life insurance you have, how you bought it, and even who the beneficiary is, will influence whether or not the eventual payout is taxed.

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.

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%.

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

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
⭐Finder Exclusive: Get a 10% discount on your first 12 months with NobleOak Life Insurance. Offer ends 30 April 2021. T&Cs apply.
AAMI Life Insurance
$1,500,000
65
$1,500,000
Trauma cover
Get 5% off for existing customers and get 12 months life insurance cover for the price of 11.
Insuranceline Life Cover
$1,500,000
65
$1,500,000
Trauma cover
Get a $100 bonus gift after 2 months. Offer ends 30 September 2021. Plus get 12 months cover for the price of 11 if you pay for life insurance annually. T&Cs apply.
Medibank Life Insurance
$2,500,000
70
$2,500,000
TPD cover, Trauma cover
You could win a $2.5K EFTPOS gift card when you get a Life Insurance quote by 27 April, 2021. There are 3 prizes of $2.5K to be won. Plus, Medibank health members save 10% every year. T&Cs apply.
ahm Life Insurance
$1,500,000
65
$1,500,000
TPD cover, Trauma cover
ahm Health members can save 10% off premiums.
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™ .
Suncorp Life Protect Insurance
$1,500,000
65
$1,500,000
Trauma cover
Sign up and become a member of Suncorp Benefits. Access savings of up to 15% from major retailers. Existing members can get a 5% discount off their policy.
Zurich Ezicover Life Insurance
$1,500,000
69
$1,500,000
No optional
Get the first month free and a 10% discount if you take out a second life insurance policy (discount applies to second policy). T&C’s apply.
Guardian Life Insurance
$1,500,000
64
$1,500,000
TPD cover, Trauma cover
Cover up to $1.5 million with Guardian Life Insurance.
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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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