Is income protection insurance tax deductible?

Income protection insurance provides up to 70% of your regular income in monthly payments if you become ill or injured, and the premiums you pay are tax deductible. This means you can protect “future you” against a number of risks to your income, while also enjoying tax benefits along the way. Learn how tax deductions for income protection insurance work.

Can you claim a tax deduction for premiums paid for income protection insurance?

If you purchase direct income protection insurance premiums (i.e. not through your super fund), you are usually able to claim a tax deduction for the cost of the premium in that financial year. This is because the cost of taking out income protection is related to your employment income. The amount you get back depends on how much you pay for income protection and your marginal tax rate. You can't claim a tax deduction if the policy pays you a lump sum to compensate you for critical illness or injury.

Will you pay tax on income protection insurance benefits received?

Any claimed benefits you receive under your policy must be declared as a received sum to the Australian Taxation Office (ATO). This amount is then likely to be treated as taxable income. Your insurance company generally won't deduct any tax you owe from the amount they pay you, whether it’s a lump sum or monthly payments, so you may be required to pay tax on these amounts when you lodge your tax return.

What if your income protection insurance is bundled in with other levels of cover in your life policy?

If your income protection insurance is bundled together with other policies, such as a life insurance policy, only the portion that represents the income protection premium is eligible for a tax deduction. For instance, if your total premium is $250 a month but the premiums you pay for income protection is $95 a month, only $95 per month is tax deductible.

Does income protection insurance include GST?

Income protection insurance is exempt from GST in Australia, because it is classified as a financial service. 

Do I qualify for an income protection tax deduction?

Generally, you can qualify for an income protection tax deduction if you’re eligible to take out an insurance policy from an approved Australian insurance company. The cost of the premium is claimed against your taxable income, so the amount of your deduction will depend on your marginal tax rate.

Can you claim income protection tax deductions through superannuation premiums?

When you purchase income protection, tax deductibility varies depending how you buy it: directly from an insurance company, or through your superannuation fund. If you purchase your income protection insurance directly through an insurance company, then the premiums are generally tax deductible. However, premiums for policies taken through a super fund are generally not tax deductible. 

Why should I consider Income Protection Insurance?

Income protection insurance pays a monthly benefit worth up to 70% of your pre-tax income, if you can’t work due to illness or injury. Unlike life insurance and other policies, premiums for income protection policies may be tax deductible, so to protect yourself and your loved ones, compare income protection policies to see what the options are.

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This information is of a general nature only and does not take into account your personal financial situation, needs or objectives. For this reason, you should consider the appropriateness of this information, having regard to your personal financial situation, needs and objectives, and read the relevant Product Disclosure Statement (PDS) before you decide to buy or to continue to hold a life insurance or superannuation product. The TAL Lifetime Protection PDS is available from tal.com.au. 

Information provided in respect of taxation law is given in good faith and for the general information purposes of Australian tax residents only. It is believed to be accurate as at 01 July 2020 but may be subject to change. TAL is not liable for any losses that may arise from reliance on this information. TAL does not give, and does not purport to give, any tax advice. As the application of tax law depends on each person’s individual circumstances, you should always seek advice from a qualified tax professional. 
This document is issued by TAL Direct Pty Limited ABN 39 084 666 017, AFSL 243260. TAL Lifetime Protection is issued by TAL Life Limited ABN 70 050 109 450, AFSL 237848.