Is Your Life Insurance Tax Deductible?
There are many life insurance products available in Australia. To answer your question, two factors are considered: the type of your life insurance, and whether it is funded through a super or not.
Insurance policies bought outside your superannuation fund are not tax-deductible. Meanwhile, some of your insurance coverage under a super may be tax-deductible.
Tax-deductible insurance types include Total and Permanent Disability and Income Protection insurance products. However, this is only applicable for TPD insurance products under a superannuation fund.
What Does Tax Deductible Mean?
Tax deductible insurance means that you pay for your insurance premiums before your income is taxed. A super fund can claim for tax deduction on your premiums. It then passes onto you by removing any taxes from the contributions you make for your super. Your employer or yourself, if you’re self-employed, can make tax-deductible contributions to your premium.
Income insurance policies are tax-deductible. The rule applies to policies taken as a standalone product or with your superannuation fund.
Life insurance policies and TPD are only tax-deductible when taken with your super. Meanwhile, Trauma insurance policies are not tax-deductible, either bought standalone or with a super fund.
What are Concessional Caps?
Concessional contributions refer to contributions made into your superannuation fund before tax deductions. There are caps on the concessional contributions that you can make each year. If you exceed the concessional cap for a given year, you will need to pay additional contribution taxes.
Your age affects your concessional cap for each financial year, as indicated in the table below.
|Financial Year||Age is less than 49 by June 30||Age is 49 or older by June 30|
|2014 -2 015||$30, 000||$35, 000|
|2015 - 2016||$30, 000||$35, 000|
|2016-2017||$30, 000||$35, 000|
|2017-2018||$25, 000||$25, 000|
|2018-2019||$25, 000||$25, 000|
To comply with all the rules that can affect your fund, you must be clear on your super contribution amount. A financial or tax advisor can help you with your life insurance tax. Only a tax expert can give you qualified information about this matter.
Are Life Insurance Payouts Taxed?
The answer depends on your life insurance, whether it is outside or within your superannuation fund. The payout of life insurance made through a super will not be taxed if the death benefit is paid to a financial dependent beneficiary.
Financial dependent beneficiaries include your spouse and children below the age of 18. However, if the payout is given to a financial non-dependent, it can be taxed by 30% or more.
Payouts for life insurance bought outside your super fund are generally tax-free. Lump-sum benefits can be taxed if the company pays for life insurance for a key person. Keyman insurance refers to a life insurance policy bought by the company, where the insured is a key executive in the company. Here, the company is the beneficiary of the policy.
Life Insurance is a Must
Whether tax-deductible or not, life insurance is a critical cover that every adult should have. The loss of the breadwinner in a family can have a significant impact on the life of his dependent. To forego life insurance would be a costly mistake. Make sure to check out all your options on the market today.
Have you considered switching your life insurance policy? Use our Life Insurance comparison service today.
Makes Cents has an easy form that you can quickly fill out to receive your comparison within minutes. What’s more is this will be personalised to your current circumstance to give you the best quote.