Is life insurance tax deductible?

Getting life insurance can feel intimidating.

Not only are there different types of life insurance to choose from or bundle together, it can also be a costly expense each month.

But while you and your family probably don’t want to make a claim on your policy for several decades yet, you may still see some benefits today when it comes to tax deductions on certain types of life cover.

What are the different types of life insurance?

There are four main types of cover that fall under the life insurance umbrella:

Types of Life Insurance

Is all life insurance tax deductible?

Unfortunately not.

Income protection is the only type of life cover that you may be able to claim back.

As a rule of thumb, the ATO won't let you claim back any Income Protection policy* where you're paying for the premiums through your super fund.

Are life insurance premiums tax deductible in super funds?

You generally can't claim Income Protection premiums back on tax if you're paying for it through your super fund.

This is because the cost of the life insurance is deducted from your super balance, rather than your income.

If you have any questions about tax deductions and benefits around life insurance in your super fund, it's best to speak to your accountant or a financial advisor.

Are life insurance premiums tax deductible outside of super?

Life, TPD and trauma insurance are not tax deductible outside of super.

However, the premiums you pay for income protection insurance are generally tax deductible, if you buy the policy outside of your super fund.

Are trauma and TPD cover tax deductible?

No, you can’t claim tax deductions on either of these.

Why is income protection insurance tax deductible?

Income protection insurance is a great way to remain financially independent even if you can’t work, so you don’t have to rely on government benefits, such as Centrelink payments.

Making income protection insurance tax deductible encourages more Australians to take their future financial responsibilities into their own hands.

When is income protection not tax deductible?

You can’t claim a tax deduction on your income protection premiums if your insurance policy is part of your super fund.

According to the ATO, you generally can’t claim any part of your premiums that relate to a lump sum payment or other benefits you may have received.

Again, it’s worth checking with your accountant or a financial adviser before you make any decisions around Income Protection and tax.

How do I claim a tax deduction for income protection premiums?

Your insurance company will send you a tax statement each year which states the premiums you’ve paid and how much you can claim.

These statements are usually sent within one or two months of the end of the financial year.

Before claiming, speak with your accountant or a financial advisor to make sure you’re clear on what you’re claiming, are eligible to claim and are submitting the claim properly.

How much can I save in tax?

The amount of money you’ll get back will depend on your income, how much you pay for income protection insurance and your marginal tax rate.

It’s always worth clarifying any tax questions with your accountant or financial advisor.

If you're looking to boost your future financial security by taking out life insurance, our experts can help you find a policy that's right for you -- all within a few clicks.

Matthew Lang is the general manager of life insurance at Compare Club. Matthew leads a team of dedicated professionals who are passionate about helping individuals and families make informed decisions about their life insurance needs. Whether it's finding the right coverage for your specific circumstances, comparing policies, or optimizing your existing policy, Matthew and his team are here to provide expert guidance and support.

Meet our life insurance expert, Matthew Lang

Matthew's top life insurance tips

• 1

  Identify what you want out of life insurance before you buy. Knowing the purpose of your life cover will help you choose a policy that meets your needs.

• 2

  It's easy to assume that the sole purpose of life cover is to leave money behind for your family, but there's more to it than that.

• 3

  Life insurers like those on our panel pay an average of 97% of claims in full.

• 4

  There are different types of life insurance, including term life insurance, income protection, trauma cover and total and permanent disability cover.