Is Life Insurance Tax Deductible?

Content OageHero Image CRO Overlay Image

Written by

|

Edited by

|

Reviewed by

Last Updated 05/09/2024
What changed?
Rewrite for tone, referencing and to extend content
|
Fact checked
Our aim is to help you make better informed decisions. That’s why iSelect’s content is produced in accordance with our fact-checking and editorial guidelines.
|

Find out more about how we make money.

View our Privacy Policy.

Last Updated 05/09/2024

What changed?

Rewrite for tone, referencing and to extend content
Our aim is to help you make better informed decisions. That’s why iSelect’s content is produced in accordance with our fact-checking and editorial guidelines.

Edited by

Ellie Garran

Reviewed by

Eliza Ryan

Find out more about how we make money.

View our Privacy Policy.

Easily compare life insurance quotes

Save time and effort by comparing life insurance with iSelect’s trusted partner Lifebroker

Are life insurance premiums tax deductible? 

In short, it depends. While some insurance premiums are tax deductible, not all are.  

There are four types of life insurance cover

  • Life insurance – also referred to as life cover, death cover or term life insurance. Pays a lump sum to your nominated beneficiaries, in the event you pass away. If you are diagnosed with a terminal illness with a predefined life expectancy, a lump sum will be paid out.
  • Trauma cover – also referred to as critical illness cover or recovery insurance. Trauma cover provides cover for specified illnesses like cancer, strokes and heart attacks meeting severity criteria. If you’re unfortunate enough to experience one of these conditions, trauma cover may pay a lump sum to help with your medical expenses, ongoing recovery and rehabilitation costs.
  • Total and permanent disability (TPD) insurance – if a serious injury or illness makes you permanently unable to work, TPD cover may help you with rehabilitation and living costs.
  • Income protection – is usually paid if you’re unable to work due to injury or illness beyond the waiting period (payments only accrue from the end of the waiting period). You could receive up to 70% of your work-related income for a specified period. 

You can take out most life insurance policies through your superannuation or from an external insurance provider. The tax implications with life insurance premiums differ depending on which option you choose. Here’s how.  

Life insurance through superannuation 

Super funds may offer life cover, TPD insurance, and/or income protection.  Trauma Insurance, however, cannot be owned through super. 

Premiums for super owned policies can be paid from the members account balance, or alternatively, the member may choose to make a personal contribution and claim a tax deduction for these premiums.  

It’s worth noting that for policies paid through superannuation, the policy owner is the superannuation trustee and not the life insured.  

Life insurance through a self-managed super fund (SMSF) 

If your life insurance is purchased through an SMSF, you won’t be able to claim the premiums as a personal deduction. However, the SMSF trustee (which could be you or someone else) may be able to claim a deduction.  

Life insurance outside of superannuation 

Typically, premiums for life cover, TPD and trauma insurance policies owned outside of super are not tax deductible.  

You can, however, claim tax deductions on the premiums you pay for insurance against the loss of your income. That means if you’re purchasing Income Protection outside of your super fund, you can include this as a personal tax deduction. The amount you’ll be able to deduct will be based on how much you earn and the tax bracket you fall under. 

Are life insurance payouts taxable? 

On the flip side, it’s also important to be aware of the potential tax implications that come with your Life Insurance payouts. Life Insurance payouts can be taxable or non-taxable depending on the type of cover, where the policy was held and who receives the payout. 

Payouts from policies held outside super: 

  • As a general rule, payouts from life insurance, TPD insurance and trauma cover held outside of your super typically aren’t taxable. This means that you or your beneficiaries won’t have to declare them or pay tax on the payout.
  • If you receive a payment under an income protection policy that replaces your salary or wages, in most instances you’re required to include it as part of your tax return. This applies regardless of whether you receive a regular payment or a lump sum.  

Payouts from policies held within super: 

  • Whether or not a life insurance or TPD insurance payout is taxable depends on your relationship with the beneficiary and how it’s paid, among other things.
  • If the death benefit is paid out as a lump sum to a SIS dependent (as defined by superannuation law, which includes a spouse, children of any age, or someone in an interdependency relationship with the deceased), the payout may be tax free.
  • If the death benefit is paid out to a non tax-dependent (which typically includes adult children, although there are exceptions), the payout might be subject to tax.  

Helpful Tip:

Your tax obligations in relation to your life insurance can be complex. They also often vary depending on your circumstances and changing tax laws. With this in mind, it’s a good idea to seek advice from a qualified tax professional or financial advisor to help you better understand your specific tax implications, based on your situation.

Eliza Ryan

Senior Marketing and Growth Channels Manager, Lifebroker

Ready to find a suitable life insurance policy? 

We’ve partnered with the life insurance specialists at Lifebroker to help take the confusion out of life insurance. Accredited to provide you with general advice which you do not pay for, Lifebroker can help you understand the benefits, eligibility requirements and drawbacks of all thing’s life insurance. Compare your life insurance options with Lifebroker today.  Any advice given does not consider your individual objectives, financial situation and needs.   

Easily compare life insurance quotes

Save time and effort by comparing life insurance from a range of policies and providers with iSelect’s trusted partner Lifebroker

iSelect’s partnered with Lifebroker (AFS Licence number: 400209) to help you compare a range of Life Insurance policies. iSelect earns a commission from Lifebroker for each customer referred through the website or contact centre. Lifebroker do not compare all life insurers or policies in the market.

iSelect Life Pty Ltd – ABN 89 124 304 347, AFS Licence Number 331128. Any advice provided by iSelect is of a general nature and does not take into account your objectives, financial situation or needs. You need to consider the appropriateness of any information or general advice iSelect gives you, having regard to your personal situation, before acting on iSelect’s advice or purchasing any policies. You should consider iSelect’s Financial Services Guide which provides information about iSelect services and your rights as a client of iSelect.’