Most people are familiar with typical work-related tax deductions, but do you know that some insurance premiums can be claimed as well?

Fear of missing out (FOMO) on tax deductions is a common phenomenon. Most of us know about the obvious expenses such as work-related clothing and work travel expenses. But did you know you can potentially claim selected insurance premiums as well?

Income Protection is one of the most important insurances you can have, as it may cover loss of income resulting from illness or injury. As well as providing financial protection, you may also be able to claim a tax deduction on the premiums paid during the financial year.

In order to take advantage of this deduction, the Income Protection policy must be paid by the taxpayer and not funded from a superannuation policy. Income Protection policies funded through superannuation are generally tax deductible to the super fund. Frequently, a person’s marginal rate of tax is higher than the tax rate of a superannuation fund. As a result, it is often more tax effective to fund Income Protection premiums from cash flow, rather than have them funded through superannuation.

At the end of the financial year, your insurance company will issue a statement with the Income Protection premiums paid. This is then used by your accountant to claim the deduction.

What other types of Life Insurance may be tax deductible?

This can vary depending on the type of cover, the structure and the intention of the policy. In addition to Income Protection, other types of life insurance cover funded through superannuation may also be tax deductible to the super fund. This can be an effective strategy to reduce the cost of premiums, compared to funding this insurance from cash flow. Care should be taken to avoid any taxation implications on insurance benefit payments within the superannuation environment. So it’s vital that you obtain advice from an insurance specialist to ensure that you have the correct structures in place to receive the most efficient taxation outcome on your life insurance cover.

Where a business holds a life insurance policy for one of its key people, and the intention of this policy is to compensate the business for loss of revenue should that key person be lost to the business due to death or disability, then the premiums for this policy may be tax deductible to the business. Business succession is a complex area, so it is important that you obtain advice from a specialist adviser, as incorrect structures can have dire consequences.

Talk to your Elston adviser about how we may be able to maximise the taxation benefits on your life insurance, while ensuring you aren’t burdened by unnecessary taxation on claim benefits.

If you would like more information please call 1300 ELSTON or email info@elston.com.au and an adviser will be in touch.