life insurance tax

Life Insurance Tax

Life Insurance Tax

Life Insurance Tax is very important.

Life insurance products come in many different forms. Whether your premiums are tax deductible primarily depends on:

  1. The type of life insurance you have
  2. If you have a standalone policy or one funded through superannuation
  3. If you want to take advantage of tax benefits when paying insurance premiums, you need to understand the types of life insurance that are tax deductible. Life insurance is an umbrella term. There are additional options available with term life insurance policies including total and permanent disability (TPD), income protection and trauma cover.

When is my premium tax-deductible?

Premiums paid for personal life insurance are not tax deductible (unless it comes in the form of a tax deduction).

However, if a policy is owned inside super, contributions that are made from the super fund to the life insurance policy can be tax-deductible.

You can receive a tax-deduction if:

  • Your fund claims a tax-deduction
  • Your payment of premiums comes from salary sacrifice or pre-tax income contribution to super

How it works

Basically, your fund will claim a tax-deduction when it makes a payment to your life insurance premiums. It will then pass on this benefit to the member by removing any tax that is payable from your super contributions.

Essentially, you will pay for premiums with pre-tax income.

Who can make deductible contributions to my life insurance premiums?

Deductible contributions can be made from your:

  • Employer
  • Yourself (if you are self-employed)

What are concessional contributions?

In order to benefit from a tax deduction on the cost of life insurance held within your superannuation, the premiums have to be paid by the fund through in what is known as a concessional contribution. This simply means it has to be a pre-tax contribution.

There are some limits on the amount that can be contributed from pre-tax income before you may be required to pay an “excess contributions tax”.