Life insurance at tax time

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30 May 2024

It’s getting close to tax time, so you may be wondering if you can claim your insurance premiums as a tax deduction or if you have to pay tax on an insurance payout. To help you prepare for the end of financial year, we cover some common questions about life insurance and tax.

Everyone’s circumstances may differ, so if you’re unsure or need help, it’s best to consult your financial adviser or registered tax agent for advice. 

  • What information do I need for my tax return?

    Details of your insurance policy, premiums you've paid, and any payouts you've received are essential for your tax return, so please keep all documents relating to your life insurance policies handy, including annual notices and payout information.

    As an MLC Life Insurance customer, you can always securely locate correspondence relating to your insurance by logging in to the Customer Portal.

  • Are life insurance premiums tax deductible? It depends

    Yes, some premiums are tax deductible, but not all of them.

    You generally can't claim a tax deduction for insurance premiums on Life, Total and Permanent Disability (TPD), and Critical Illness (Trauma) covers.

    But if you hold insurance inside your super and make personal contributions to pay your premiums (eg using a credit card or BPAY), your premiums may be tax-deductible. If you want to claim a tax deduction on personal contributions, you'll need to complete a ‘Notice of Intent’ form before submitting your tax return.

    If you pay premiums for Income Protection cover or Business Expenses insurance, you can generally claim some or all of those premiums for income replacement as a tax deduction.

  • What if my SMSF pays my premiums?

    If your SMSF holds your insurance, you're not eligible to claim premiums paid by your fund as a personal tax deduction. However, the SMSF trustee may be able to claim some or all the insurance premiums it paid during the financial year when lodging the SMSF Annual Return.

  • Do I have to pay tax on insurance payouts?

    The tax you pay on insurance payouts depends on the type of cover and if the cover is inside super.

    Life insurance payouts from Life, TPD, or Critical Illness cover held outside super are generally not taxable. That means you'll unlikely have to pay taxes on that money.

    Where Life or TPD cover is held inside super, the tax treatment will depend on the relationship between you and the beneficiary who receives the payment, how the benefit is paid, and other circumstances.

    Income Protection and Business Expenses payouts that replace a portion of your income will likely be taxable and should be included in your relevant tax return.
    The rules relating to the taxation of benefits are complex. If you need clarification on whether your life insurance payout is taxable, it's best to consult a tax professional. 

Who to go to for more information

Understanding how life insurance premiums and payouts can affect the tax you pay is important. Our tax time and life insurance page provides information on when to expect EOFY statements. While we hope this article has been helpful, individual situations vary. We recommend speaking to a registered tax agent or financial adviser if you need help understanding what applies to you.

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