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Is Income Protection Insurance Tax Deductible?

To understand if your income protection insurance premiums are tax-deductible, you need to know if your policy is held within your super fund and the specifics of what the policy covers.

Are Income Protection Premiums for Policies Within Superannuation Funds Deductible?

If your income protection premiums are deducted from your super contributions, then they are not personally tax deductible. However, as insurers receive a 15% tax rebate due to the premiums being a deductible expense to the fund, most insurers pass on this 15% saving to you if you pay your premiums annually as a rollover.

Are Income Protection Premiums for Policies Outside of Superannuation Funds Deductible?

Yes! Generally premiums that you pay towards an income protection insurance policy outside of your super fund are deductible. It should be noted, however, that if any portion of the income protection policy covers capital as opposed to income, only the portion of the premium dedicated to your income will be deductible. Income protection insurance held outside of super can also often be bundled with other kinds of insurance.  If your policy includes benefits such as the TPD Lump Sum Option, a portion of your premium will not be deductible. Always check with your insurance provider to find out about your exact coverage.

Will My Income Protection Insurance Benefits Be Taxed?

Yes. While your premiums are deductible when being paid outside your super fund, the payments you receive if you ever claim are taxable.  You must declare them much as you would regular income from an employer. Some benefits, such as receiving a Trauma Benefit will not be treated as income, and as such it will not be assessable as taxable income. If your policy is held within a super fund, the trustee of the fund will generally apply withholding tax to the benefit.  However, this can vary between funds, so you should seek clarification. Again, always check with your insurance provider to find out about your exact coverage.

What Else Should I Consider When Purchasing Income Protection Insurance?

You should always carefully analyse the features of each policy that you are considering.  There are much more important aspects to income protection insurance than the deductibility of the premiums. The cost of your premiums, the level of coverage, whether you can get your income protection insurance as part of a package or as a stand-alone product, and if there are any industry or association discounts you may be eligible for are just a few key considerations.

Learn More About Income Protection Insurance

If you want to know more about whether purchasing income protection insurance is right for you and your family, have a chat with a professional insurance adviser. They have all the information you need to get the coverage that’s right for you at their fingertips. Get in touch with a friendly adviser from Cover Australia on 1300 366 817 or simply click ‘Get a Quote’ to start comparing what’s on offer from Australia’s top insurers today.  

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