Life insurance is often used as an umbrella term that includes various types of insurance, such as life (or death) cover, total and permanent disability (TPD) cover, trauma insurance and income protection. However, this article addresses life insurance or life cover as an individual product. A life insurance policy can give financial security to your loved ones by providing them a benefit payout if you were to suddenly pass away or were diagnosed with a terminal illness.
If you would like to learn how tax deductions work for income protection, please read our article Income Protection and Tax Deductions in Australia: What you need to know, as the rules are different.
The information in this article is a general summary only. If you want to know how tax works for your personal situation, you should speak to a registered tax agent.
Whether you’re an independent contractor, sole trader or small business owner, being self-employed comes with its own rewards and challenges. While you’ve got more control over your projects and hours, there’s also more pressure and responsibility, especially if you become too sick or injured to work. For the self-employed, taking time off to recover from sickness or injury usually means income stops, but expenses don’t. This is where income protection insurance can help protect you.
What is life insurance and how does it work?
Life insurance (also known as death cover) is designed to financially support your loved ones if you pass away or are diagnosed with a terminal illness. A life insurance policy can provide a lump sum payout to the people you choose, known as beneficiaries. This financial safety net can help alleviate the stress of worrying how your family will cover any debt repayments, bills and living expenses.
Tax deductions on premiums and payouts
Can I claim a tax deduction on life insurance (death cover) premiums?
Generally, you can’t claim a tax deduction on premiums paid for life insurance cover. Whether the policy is held inside or outside of your superannuation, tax deductions are generally not available.
Will tax apply to my life insurance payout?
Any life insurance payouts made to your nominated beneficiaries will usually be tax free if the policy was held directly by you (and not inside your superannuation fund).
Taxes may apply on a life insurance policy held within a superannuation fund. Please refer to the Frequently Asked Questions section below for more details.
Generally, income protection payouts may be subject to tax — you can read about the rules specific to income protection in our article Income Protection and Tax Deductions in Australia: What you need to know.
How to make the most of your life insurance coverage in Australia
There are a few things you can do to make sure you’re getting the most out of life insurance coverage in Australia. Here are a few things to keep in mind when setting up or reviewing your life insurance.
1. What are you protecting?
Life insurance is about protecting your loved ones from financial burden if you were no longer around to help pay for life’s expenses. When applying for life insurance, it’s helpful to think about what your life expenses are. They might include:
- Rent or mortgage repayments — If you’ve got a mortgage, how many years are left on it? Would your loved ones be able to manage the repayments on their own?
- The cost of educating and caring for children — To give you an idea, the estimated cost of 13 years of education for one child can reach up to $87,000 for government schools and $300,000 for private schools.
- Debts — These might include credit card debt, a personal loan or car loan.
- Bills, groceries and everyday living expenses — These might include utility bills, the cost of registering a vehicle, and medical costs.
These are the things that your life insurance payout may help you to cover — thinking about them can help you decide the level of cover that would provide the most value for your loved ones at claim time. Our calculator
can help you in your decision about what level of cover you may wish to obtain.
2. Compare insurers and policies
Once you’ve worked out the amount of cover you’re after, you’ll need to find the right insurer and policy for your needs. You can use our comparison tool to compare some of Australia’s leading insurance providers, and once you’ve compared some available policies online, you can easily speak with one of our insurance consultants who can answer questions you may have and help you complete an application if you decide to purchase a policy.
3. Review your insurance when life changes
It’s important to review your insurance when you experience any significant life changes, like buying a property, having a child, or receiving a salary increase. Life-changing events could affect how much insurance cover you need — for example, if you took out insurance before having children, you may need to increase your cover with any new additions to the family.
Some insurance companies offer guaranteed future insurability (GFI), meaning you can apply to increase your insurance cover up to certain limits set out in the policy terms when you experience specific life changes (like having children, getting married or receiving a salary increase) without having to provide evidence of continued good health. You can check whether an insurer offers this feature when you compare policies using our comparison tool. The details and conditions of guaranteed future insurability will be set out in the insurer’s product disclosure statement. For example, typically the GFI feature will only apply up to a certain age and not for the term of the policy.
Talk to an expert
You can speak with one of our expert insurance consultants, who can help you get the most out of your life insurance. Our consultants are available on 13 54 33, Monday–Friday, 9am–5:30pm (AEST) — they can help you make sense of your insurance comparison and assist with applications. You may also like to seek advice from a financial planner.
LIFEBROKER ONLY PROVIDES GENERAL ADVICE, WHICH MEANS WE HAVEN’T CONSIDERED YOUR INDIVIDUAL FINANCIAL SITUATION, OBJECTIVES OR NEEDS. BEFORE ACTING ON IT, PLEASE CONSIDER THE APPROPRIATENESS OF THE ADVICE, HAVING REGARD TO THESE FACTORS. BEFORE MAKING A DECISION TO PURCHASE OR CONTINUE TO HOLD A LIFE INSURANCE PRODUCT, YOU SHOULD READ THE RELEVANT PRODUCT DISCLOSURE STATEMENT (PDS). THE PDS INCLUDES THE DETAILS OF THE PRODUCT ISSUER. THE TARGET MARKET DETERMINATION FOR EACH PRODUCT IS ALSO AVAILABLE.
INFORMATION PROVIDED IN RESPECT OF TAXATION LAW IS GIVEN IN GOOD FAITH AND FOR THE GENERAL INFORMATION PURPOSES OF AUSTRALIAN TAX RESIDENTS ONLY. IT IS BELIEVED TO BE ACCURATE AS AT 11 JULY 2023 BUT MAY BE SUBJECT TO CHANGE. LIFEBROKER IS NOT LIABLE FOR ANY LOSSES THAT MAY ARISE FROM RELIANCE ON THIS INFORMATION. LIFEBROKER DOES NOT GIVE, AND DOES NOT PURPORT TO GIVE, ANY TAX ADVICE. AS THE APPLICATION OF TAX LAW DEPENDS ON EACH PERSON’S INDIVIDUAL CIRCUMSTANCES, YOU SHOULD ALWAYS SEEK ADVICE FROM A QUALIFIED TAX PROFESSIONAL.
THIS DOCUMENT IS ISSUED BY LIFEBROKER PTY LTD, ACN 115 153 243, AFSL 400209.
Frequently Asked Questions
Life insurance payouts through superannuation are not taxed where the beneficiary (the person who receives the payout) is a dependant. The key here is in the definition of ‘dependant’, which has a specific meaning under superannuation and tax law — a dependant, for tax purposes includes a:
- spouse (including a de facto spouse of same or opposite sex)
- child under age 18
- financial dependant, or
- someone with whom the member shared an interdependency relationship.
These dependants should not need to pay tax on a super life insurance payout.
Where a beneficiary is not considered a dependant as defined above — for example, a child over 18 — the payout will usually be subject to tax at a rate based on superannuation laws.
No — you won’t be able to claim tax deductions where your policy is held in your superannuation account.
Some people choose to bundle different life insurance products from the same provider, under a single policy.
For example, to meet your needs you may have life cover, total and permanent disability (TPD) cover, and income protection cover together in one comprehensive package.
Generally, life insurance premiums for (death cover, total permanent and disability and critical illness) cannot be claimed as a tax deduction. Only income protection may be eligible to claim as a tax deduction. However, if your income protection is bundled with another cover type, you may be eligible to claim a tax deduction on a portion of your premiums linked to income protection. For more detailed information on tax deductions for income protection, you can refer to our article Income Protection and Tax Deductions in Australia: What you need to know.
You might consider getting life insurance if you’re not sure how your loved ones would cope financially in the event that you pass away. If your family would struggle to pay for debts and life expenses without your income, it may be worth considering life insurance. You can read more about the benefits, pros and cons of life insurance to help you decide if it’s something you and your family need.