Tax Treatment of Trauma Insurance

How is trauma insurance taxed In Australia?

Trauma Insurance provides a lump sum benefit in the event of suffering a critical illness or medical condition such as a stroke, heart attack or cancer. Most policies will cover up to 50 different conditions.

Are my premium payments tax deductible?

  • Premium payments for Trauma Insurance are not tax deductible.

Do I need to pay tax in the event of a claim?

  • In the event of a claim, the proceeds from a Trauma Insurance policy are paid free of tax.

Many of us will know someone in our lives that has suffered a critical illness. Those close to the person know the emotional impact that serious illness can have on their own lives. These events can also bring financial hardship for the individual and their loved ones through loss of income and the resulting medical expenses. Advances in medical technology have meant that the majority of trauma events are no longer fatal, making the need for trauma cover to compliment life insurance increasingly important. Trauma Insurance can ensure the right financial protection is in place through the provision of a lump sum payment to the policy owner and their beneficiary/ies upon diagnosis of a medical condition specified within their policy.

Enquire now to compare quotes for Trauma Insurance

Rates of serious illness in Australia

  • 1 in 3 Australians will suffer a serious illness at some stage of their lives.
  • According to the ABS social trend data from 2009, 1 in 3 women and 1 in 4 men will suffer cancer at some point in their lives.
  • 55,000 Australians suffer heart attacks each year (Heart Foundation)

Tax treatment of trauma insurance outside of super

Trauma insurance premiums

Premium payments for individuals cannot be claimed as expenses in assessable income (as any benefit payment received from trauma policies are not recognised as income). For this reason trauma benefits are not tax-deductible.

Trauma Insurance benefit payments

Trauma insurance benefit payments are exempt from capital gains tax.  The reason for this is that in comparison to income protection insurance, the benefit does not replace the policy owners income but provides them with lump sum capital should they suffer a specified event.

Trauma Insurance is no longer available through superannuation. This came into effect July 1, 2014.

Taxation of trauma insurance funded through superannuation (prior to July 1, 2014)

Tax on Premiums

Trauma Insurance premiums are not tax deductible to the funds trustee. Any concessional contributions made to pay for the trauma cover premiums are taxed within the fund. This can reduce the tax concession that the policy owner will receive on policy premiums to the difference between the super funds income tax of 15% and their marginal tax rate.

Tax on Benefits

Benefit payments on trauma policies that are funded through superannuation are generally not subject to tax within the fund. Benefits that are received by the policy owner are subject to tax according to:

  • Whether the benefit is a lump sum payment or pension
  • Reason for payment i.e. if it was for permanent disablement, death or diagnosis of terminal illness)
  • Age of the policyholder

Benefit payments for trauma policies funded through superannuation generally do not create a tax-free component.


How do I keep trauma insurance affordable?

With premiums for Trauma Insurance generally not fully tax-deductible both within and outside superannuation, it is important that policy owners take the necessary steps to find competitively priced trauma insurance options. Some important steps for policyholders to take when considering taking out cover include:

  • Review benefits and features available. Consider the range of benefits and features available on policies and if they are relevant for your situation. Such features include:
  • Range of medical conditions covered
  • Trauma cover buy back option
  • Financial planning assistance
  • Accommodation benefit
  • Waiver of premium
  • Child Trauma Cover option
  • Guaranteed future insurability option.
  • Bundle with Life Cover. It is generally more cost-effective for policy owners to link their trauma cover with their life insurance. Policy owners will save on establishment fees and stamp duty.
  • Get healthy. Pre-existing medical conditions and the applicant’s level of health can play a major in the premium that the applicant will pay. Insurers will consider smoking and drinking status and BMI among other risk indicators.
  • Compare policy options with an insurance consultant. An insurance consultant has the benefit of being able to compare hundreds of different policy options that are available to help you find competitively priced products with features suitable to your situation.

The decision on whether or not to take out protective cover should never be based purely on price and while Trauma Insurance may be more expensive than other types of cover, it is becoming more and more essential as survival rates following medical events continue to increase. Many people are still surprised when they find out how affordable Trauma Insurance can be if they take the time to assess their insurance needs and compare the different options available.

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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.
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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.
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