What is the tax treatment of my insurance policy?

You will need to check with your financial advisor about the specific tax treatment of your policies in your individual circumstances. However, in general terms the tax treatment of the different types of policies is as follows:

  • For income protection policies your premiums are likely to be a deductable expense, which you can claim against your taxable income. Should you need to make a claim, any payments you receive will generally be assessed as income since they replace your regular, taxable earnings.
  • Usually, the premiums you pay on life (death benefit), TPD and trauma policies are not tax deductable. However, if you make a successful claim under one of these policies you will receive a lump sum payment, which will in most cases be tax-free.

There may be tax advantages to structuring your policies within a Self-Managed Super Fund (SMSF), as well as cash flow benefits since the premiums for some types of insurance cover can be paid by your fund.

Many insurers will allow you to package your policies so that your benefits are split, with some components (such as your income protection) held inside your SMSF and other elements held directly by you. This allows you to take full advantage of any tax benefits but still have unrestricted access to any tax-free lump sum payments you may receive. You’ll need to talk to your financial advisor about whether holding your insurance within an SMSF is the right choice for you.

Our experienced advisors can help you to understand the ways in which you may be able to structure your policies to make best use of your SMSF. You will still need to talk to your financial advisor to get explicit tax advice.

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