Is Life Insurance Tax-Deductible?

Find out whether you can claim life insurance premiums as a tax deduction in Australia with Savvy.

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, updated on July 10th, 2023       

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If you're considering purchasing life insurance, you might be wondering if you can claim the premiums as a tax deduction. While life insurance can provide a range of benefits, including financial security for your loved ones, tax deductibility isn’t always clear-cut.

You can explore whether life insurance is tax-deductible in Australia and what factors might influence your eligibility right here with Savvy. Find out more about how it all works and the types of insurance which may be tax-deductible before you submit your return.

Are life insurance premiums tax-deductible in Australia?

In Australia, personal life insurance premiums aren’t generally tax-deductible. This means you can’t claim your term life insurance premiums as a deduction on your personal tax return, as is the case with total and permanent disability (TPD) and trauma cover. This is because the purpose of life insurance is to provide financial protection for your dependents or beneficiaries in the event of your illness, disablement or death and isn’t considered a tax-deductible expense.

However, there are some circumstances where life insurance premiums may be tax-deductible. For example, income protection insurance premiums can be claimed as a tax deduction, as these are paid to provide cover against the loss of your income, according to the ATO. Additionally, business owners may be able to claim a tax deduction for life cover premiums if it’s seen as revenue protection for your business.

If you have life insurance through your employer's super fund and they have a group policy for their employees, the premiums paid by the employer may be tax-deductible for the business. However, as an employee, you cannot claim the premiums as a personal tax deduction.

It's important to note that the rules around tax deductions for life insurance premiums can be complex and may vary depending on the specific circumstances of your policy and your employment situation. It’s always a good idea to check the ATO website and consult with a financial or tax professional to determine your eligibility for any tax deductions related to your life insurance policy.

Is life insurance taken out through a super fund tax-deductible?

Life insurance taken out through a super fund in Australia also isn’t tax-deductible for individuals. However, the premiums paid by the super fund are generally tax-deductible for the fund.

If you have life insurance through your super fund, the premiums are deducted from your super balance, rather than your after-tax income. This can have tax benefits in the sense that the premiums paid from your super balance are taxed at the concessional rate of 15%, which may be lower than your personal tax rate.

However, life insurance premiums paid through a self-managed super fund (SMSF) may be tax-deductible in some cases. If you’re unsure about the tax implications of your life insurance held within super or your SMSF, it’s worth seeking advice from a financial professional or accountant.

Will I have to pay tax on a life insurance payout?

In Australia, life insurance payouts are generally tax-free when they’re made as a lump sum payment to a financial dependent, such as a child or partner. This means that if you’re a dependent beneficiary of a policyholder who passes away, you likely won’t have to pay tax on that money.

There are, however, a few exceptions to this rule. For example, if the life insurance policy was held inside a superannuation fund and the policyholder wasn’t a financially dependent individual, the payout may be subject to taxation. The tax rate will depend on whether the payout is made as a lump sum or income stream, and the age of the deceased at the time of their death.

Additionally, if the policyholder held a key person insurance policy, which is taken out by a business to protect against the loss of a key employee or owner, the payout may be subject to tax as the policy is designed to provide financial protection for the business rather than the individual.

It's also important to note that life insurance benefits which are structured as an ongoing monthly payment, such as income protection insurance, will be subject to taxation in the same way your standard income would be.

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Compare life insurance policies side-by-side

Through Savvy, you can consider a range of competitive life insurance policies from reputable insurers, whether you're after life, income protection, trauma or TPD cover. Get the ball rolling on comparing your available options today!

Disclaimer:

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.