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Is Life Insurance Tax Deductible?

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Written by Russell Cain

| Updated: 06 July 2026

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Important: This article is a general guide only. We are not registered tax agents under the Tax Agent Services Act 2009. For advice that applies to your personal circumstances, please speak with a registered tax professional or accountant.

Which insurance premiums are tax deductible?

Keep in mind that these are general rules only. Tax outcomes can vary if your policy is held through superannuation, owned by a business, or forms part of a more complex insurance arrangement. Any Occupation TPD held through superannuation may be deductible to the super fund. See “TPD insurance and tax” below for details.

Life insurance held outside superannuation

If you own a life insurance policy directly, your premiums are generally not tax-deductible. This applies to most personal life insurance policies, including death cover, TPD insurance and trauma insurance. The Australian Taxation Office considers these policies to be personal expenses rather than costs incurred to earn income that can be assessed.

However, insurance payouts from policies held outside super are usually paid tax-free to your nominated beneficiaries.

Life insurance held through superannuation

If your life insurance is held through your super fund, the premiums may be tax-deductible to the fund itself, but not to you personally.

This means you generally can’t claim a deduction for your premiums on your personal tax return.

However, the tax treatment of any payout can be more complex. Whether your beneficiaries pay tax depends on factors including:

• whether the recipient is a tax dependant
• the type of insurance benefit being paid
• whether the benefit is paid as a lump sum or income stream

Generally, spouses, de facto partners, children under 18, financial dependants and people in an interdependency relationship are considered tax dependants. Adult children who are not financially dependent on you may need to pay tax on benefits received through super.

Life insurance payouts outside super

If you hold a life insurance policy outside superannuation, any lump sum paid to your beneficiaries is generally tax-free. For example, if your spouse receives a death benefit from a policy you owned personally, they won’t usually need to pay tax on the payout.

The same treatment generally applies to TPD and trauma insurance benefits paid directly to the insured person. Income protection insurance is the exception. Because these payments replace your regular income, they are usually considered assessable income and taxed at your marginal tax rate.

Life insurance payouts through super

Different rules apply when your policy is held through superannuation.

Whether tax applies depends on:

• who receives the benefit
• whether they qualify as a tax dependant
• the type of insurance benefit
• whether the payment is made as a lump sum or an income stream

Tax dependents generally include:

• a spouse or de facto partner
• children under 18
• someone who was financially dependent on you
• someone in an interdependency relationship with you

If a death benefit is paid to a tax dependant as a lump sum, it is generally tax-free.

However, if the payout goes to an adult child who was not financially dependent on you, tax may apply to part of the benefit.

Are life insurance premiums tax-deductible for self-employed people?

Being self-employed doesn’t automatically make life insurance premiums tax-deductible. If you’re a sole trader, contractor or small business owner, the same rules generally apply as they do for employees:

• life insurance premiums are not tax-deductible
• TPD and trauma insurance premiums are generally not tax-deductible
• income protection premiums are usually tax-deductible

Because business structures and insurance ownership arrangements can vary significantly, it’s worth speaking with a tax adviser or financial professional before making any changes.

Tax rules for different types of insurance

Income protection insurance and tax

Income protection insurance provides regular monthly payments if you’re unable to work due to illness or injury. Because the benefit replaces your income, premiums are generally tax-deductible when the policy is held outside superannuation.

However, any payments you receive from an income protection claim are treated as assessable income and must be included in your tax return. Take note that income protection can be held through superannuation and that different tax treatment applies to benefit payments accessed via super versus outside it 

TPD insurance and tax

TPD insurance provides a lump sum benefit for total and permanent disability. Only an Any Occupation TPD policy can be held inside superannuation; Own Occupation TPD must be held personally, outside super. 

If you hold TPD insurance outside super, premiums are generally not tax-deductible, and benefits are usually paid tax-free when the policy insures you, your spouse, or a dependant. Where someone else owns a policy on your life, a capital gains tax liability may arise on payout. If your (Any Occupation) TPD cover is held through superannuation, the super fund may claim a deduction for premiums. However, tax may apply when you access the benefit depending on:

• your age
• whether you meet the definition of a disability super benefit
• whether the payment is made as a lump sum or an income stream

Trauma insurance and tax

Trauma insurance, also known as critical illness insurance, pays a lump sum if you’re diagnosed with a specified medical condition, such as cancer, stroke or heart attack. Premiums for trauma insurance are generally not tax-deductible because the cover is designed to compensate you for personal illness rather than replace lost income.

Benefits are usually paid tax-free when the policy insures you, your spouse, or a dependant. Where someone else owns a policy on your life, capital gains tax may apply. New trauma insurance policies can’t be purchased through superannuation, although some policies established before 1 July 2014 may still be held inside super under grandfathering rules.

How to claim eligible insurance premiums at tax time

If you’re claiming a deduction for income protection insurance premiums, keep records of:

• your annual insurance statements
• premium payment receipts
• any correspondence from your insurer confirming deductible amounts

If your policy combines multiple types of cover, such as life insurance and income protection, only the portion of the premium relating to income protection may be deductible.

Most insurers provide an annual statement outlining the deductible amount. If you’re unsure whether you can claim a deduction, speak with a registered tax agent or accountant before lodging your tax return.