Is Life Insurance Tax Deductible?

Generally, direct life insurance premiums are not tax-deductible in Australia. This means that you can’t request a reimbursement of your premiums when lodging a tax return. However, if you have life insurance through your superannuation, your premiums will be funded by your superannuation fund, which could include pre-tax contributions. This is organised through your employer or superannuation fund.

Here’s a brief overview of the tax implications you should consider around life insurance and other related products, especially as you get older. However, keep in mind that this is general information only and should not be taken as financial or tax advice. You should seek guidance from a tax advisor to ensure your circumstances are taken into account.

When is life insurance tax deductible?

The Australian Taxation Office (ATO) advises that personal life insurance premiums are not tax deductible¹. However, if you have a group life insurance policy (cover held through a superannuation fund), the rules are slightly different. In this case, your fund pays a third-party provider for life insurance on your behalf. Your fund can claim their payments on tax and, depending on how your contributions are funded, this may come from your pre-tax income. 

However, it’s important to remember that life insurance through super doesn’t always offer as much cover as a direct policy, which means you could end up being under-insured². Payouts or benefits from this type of cover could also be taxed in some cases, so keep this in mind when setting your plans.

Is any type of life insurance tax deductible?

According to the ATO¹ any form of insurance that covers you for personal physical injuries is not tax-deductible. This means that benefits such as Total and Permanent Disability (TPD) cannot be claimed on your tax. The same rules apply as mentioned above. However, the downside is that any payouts or benefits received from your group life insurance policy may be taxed in some cases, particularly if you have not yet reached your preservation age under superannuation law.  

The only exception to the ATO’s rules is income protection insurance, which is designed to temporarily replace your income if you can’t work for a set period of time. This type of cover can be useful if you are still working and your family relies on a steady income.

The ATO states that you can claim your income protection insurance premiums on tax. This is an incentive by the Australian government to promote self-sufficiency³ in case you couldn’t work as it reduces the need for Centrelink or other taxpayer funded programs. Consistent with this, any benefits claimed under income protection will generally be considered as income and will need to be declared as such in your tax return.

Is funeral insurance tax deductible?

Funeral insurance covers you for a limited benefit (usually up to $15,000) to help your loved ones with the cost of your funeral if you pass away. Premiums paid for this type of cover are not generally tax deductible.    

Do tax rules change when I retire?

No, there are usually no changes to the tax rules around life insurance when you retire. However, other forms of insurance, as well as your income and super, may be subject to specific taxation laws if you are retired. Tax rules for obtaining benefits through your superannuation, including insurance benefits that you are eligible for, may change as you age and retire. If you have any concerns, you should contact the ATO for further advice.