Is life insurance tax deductible ?

Written by 
Bill Tsouvalas
Bill Tsouvalas is the managing director and a key company spokesperson at Savvy. As a personal finance expert, he often shares his insights on a range of topics, being featured on leading news outlets including News Corp publications such as the Daily Telegraph and Herald Sun, Fairfax Media publications such as the Australian Financial Review, the Seven Network and more. Bill has over 15 years of experience working in the finance industry and founded Savvy in 2010 with a vision to provide affordable and accessible finance options to all Australians. He has built Savvy from a small asset finance brokerage into a financial comparison website which now attracts close to 2 million Aussies per year and was included in the BRW’s Fast 100 in 2015 as one of the fastest-growing companies in the country. He’s passionate about helping Australians make financially savvy decisions and reviews content across the brand to ensure its accuracy. You can follow Bill on LinkedIn.
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, updated on November 25th, 2021       

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Getting life insurance is a long-term investment that you can use to provide for your family to provide long time care and possible retirement. When it comes to the paying of your benefit you may have the question of whether this will be tax deductible. This guide will help you know when a life insurance policy will be tax deductible and when it won’t be.

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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