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Are life insurance premiums tax deductible?
There is no straight cut answer when it comes to whether your life insurance premiums are tax deductible. This will depend on whether you have purchased your insurance policy through superannuation, directly, whether you are self-employed and who your beneficiaries are. For example, life insurance policies that are paid out to financial dependents are not subjected to taxation.
When will life insurance be tax deductible?
A few circumstances can allow your policy to be tax deductible. If you are self-employed and your policy is purchased through a superannuation fund, your policy will be tax deductible with a tax rate of up to 35% if paid to non-financial dependents. According to the Australian Tax Office, the premiums that you pay on your income protection are tax deductible. TDP that has been purchased through a superannuation fund is also tax deductible. There are some cases where the policy can be tax deductible if it is paid out to an adult child that is no longer financially dependent on you.
When will it not be tax deductible?
If you have purchased your life insurance policy directly through an insurer your premiums are generally not tax deductible. If the life insurance benefit is paid out to your dependents it won’t be taxed and is usually paid as a lump sum or as an income stream. There are a few circumstances where your beneficiaries will have to pay tax in terms of certain gifts received through a will and the way the gift was given. Speaking to your insurer or an ATO officer can give you a clear understanding of whether your policy will be tax deductible or not.
Will your beneficiaries have to pay tax?
Life insurance that has been purchased directly through an insurer usually means that your beneficiaries won’t have to pay for tax deductions. However, there are some cases where they will have to pay taxes in scenarios such as:
- The beneficiary being over the age of 18 and is no longer financially dependent when the claim is paid out.
- The ownership of your life insurance policy is held by a business for monetary value.
- The executor of your will maintains the death benefits once you have passed on.
Speaking to a qualified insurer or personal accountant can help you know which option will be well suited for your circumstances and whether you will get adequate cover from it. Remember to always compare your policy to get the best value for your money.
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This guide provides general information and does not consider your individual needs, finances or objectives. We do not make any recommendation or suggestion about which product is best for you based on your specific situation and we do not compare all companies in the market, or all products offered by all companies. It’s always important to consider whether professional financial, legal or taxation advice is appropriate for you before choosing or purchasing a financial product.
The content on our website is produced by experts in the field of finance and reviewed as part of our editorial guidelines. We endeavour to keep all information across our site updated with accurate information.
Savvy is partnered with Compare Club Australia Pty Ltd (AFS representative number 001279036) of Alternative Media Pty Ltd (AFS License number 486326) to provide readers with a variety of life insurance policies to compare. Savvy earns a commission from Compare Club each time a customer buys a life insurance policy via our website. We don’t arrange for products to be purchased from these brands directly, as all purchases are conducted via Compare Club.
Savvy does not compare all life insurance policies or providers currently operating in the market. Any advice presented above or on other pages is general in nature and doesn’t consider your personal or business objectives, needs or finances. It’s always important to consider whether advice is suitable for you before purchasing an insurance policy.
For any further information on the variety of insurers compared by Compare Club or how their business works, you can read their Financial Services Guide.
