Are life insurance premiums tax deductible?

Tax time is just around the corner — it’s helpful to know if you could claim a tax deduction on your insurance premiums. Here, I’ll break down when you might be eligible for a tax deduction on insurance premiums and when tax deductions don’t apply.

Which types of life insurance can I claim tax deductions for?

Generally, you can only claim tax deductions for premiums paid on an income protection policy. This is because income protection premiums are an expense directly related to your income. In contrast, life (or ‘death’), total and permanent disability (TPD), and critical illness insurance premiums are usually not eligible for tax deductions. Furthermore, how your income protection policy is set up will determine your eligibility for tax deductions.

Income protection outside of super

If you have a standalone income protection policy (meaning it’s held outside of super), you may be eligible to claim a tax deduction on premiums paid for the financial year. Some people have what is known as a ‘bundled’ policy — that is, one policy, a single premium amount, and multiple cover types in a bundle. If your income protection insurance is bundled together with other policies, such as a life insurance policy, only the portion that represents the income protection premium is eligible for a tax deduction. For instance, if your total premium is $250 a month but the premiums you pay for income protection is $95 a month, only $95 per month may be tax deductible.

Income protection held within superannuation

You generally can’t claim a tax deduction on premiums for insurance held in super (including income protection). There are a few reasons for this:

• Insurance in super is owned by the super trustee, not by you. If you have insurance through super, you’re considered the life insured, rather than the policy owner. Your super fund technically pays your premiums by deducting the cost from your super balance.
• Super contributions may have already been taxed favourably. Premiums are deducted from your super balance, which is already treated favourably for tax purposes: money in super is usually taxed at 15%, so there are no further tax benefits available via tax deductions.

Income protection in a self-managed super fund

The rules for insurance held within a self-managed super fund (SMSF) are more complex, and in some cases, you may be eligible for a tax deduction. If you need more information about how this works for your personal situation, please speak to an SMSF accredited adviser.

Any advice is general in nature only and has been prepared without considering your needs, objectives or financial situation. Before acting on it you should consider its appropriateness for you, having regard to those factors. Before making any decision about whether to acquire a financial product, you should obtain the Product Disclosure Statement and independent financial and tax advice.