Is income protection insurance tax deductible?
A guide to income protection and tax deduction
How does income protection insurance work?
Income protection insurance can replace your income if you can’t work due to an illness or injury. If eligible, your insurance company will typically pay a monthly benefit equal to a percentage of your regular income (e.g. 70%) for a set amount of time (e.g. six months or until the age of 65), called your benefit period.
Income protection and tax
You can only claim for the premiums you pay during the financial year. So, if you started your income protection policy halfway through the year, make sure you only claim for the premiums you’ve paid. You can, however, pay all your premiums a year in advance and then claim that whole amount on your return.
You’re also taxed on your income protection payments. When it comes to compensation and insurance payments for lost income, you may need to pay tax on this money, according to the Australian Taxation Office (ATO).1 If you have to make a claim, keep this in mind when you do your next tax return.
In what situations are my premiums not deductible?
There are several reasons you might not be able to claim a tax deduction on your income protection premiums; if you’re unsure whether you’re eligible for a deduction, consider seeking tax advice from a qualified tax agent.
One common reason you may not be able to claim on your income protection insurance premiums is if you’ve taken out cover through your superannuation fund.
You also can’t claim on any term life, trauma/critical illness care or total permanent disability (TPD) insurance premiums (or any other policy that pays a lump sum to compensate you for an injury) as these don’t protect you against the loss of your employment income.
If you have a linked or bundled policy that combines income protection with one of the above products, you may still be able to claim back your premiums, but only the income protection portion.
Is it better value to get income protection inside or outside of superannuation?
This will depend on your own unique situation, such as your income, tax situation and insurance needs. Give yourself the best opportunity possible to get a great value product by weighing up options from both super funds and insurers.
Above all, make sure the cover you take out adequately fits your needs. Read more about income protection insurance or compare policies and quotes with our online service.
The information provided here is of a general nature and does not consider your personal objectives, financial situation or needs. Before you decide to purchase a product, it is important to read the relevant product disclosure statement (PDS).
Meet our life insurance expert, Steven Spicer
As the Executive General Manager of Health, Life and Energy and our expert in income protection insurance, Steven Spicer knows just how valuable it can be to have a policy that could support you and your family through a difficult time. Steven is passionate about making income protection more accessible to everyday Australians by helping them understand and compare their options.
Steven has 20 years of experience as a people-first business leader, with a focus on creating services that put customers first.
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1 Australian Taxation Office, Income protection insurance. Last updated June 2024.