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.
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) |
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| Life insurance (inside super) |
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| Trauma (outside super) |
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| TPD (outside super) |
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| TPD (inside super) |
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| Income (outside super) |
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| Income (inside super) |
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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.
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.
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%.
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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