By Tony Smilevski · Updated 11 October 2026
Key points
General information only. The guide does not say how tax applies to any reader; a registered tax agent or accountant can say how it applies.
Whether an insurance premium is tax deductible, or a payout is taxed, depends on the type of cover, who owns the policy, how the premium is paid and what the policy is for. We are not tax agents. This page quotes the Australian Taxation Office (ATO) in its own words, with a source for each quote, and does not apply any of it to you. The ATO changes its pages from time to time, and each footnote shows the date we read the page.
Is life insurance tax deductible?
On its income protection page, the ATO says you can't claim a deduction if the policy "pays you a capital sum to compensate you for injury", among other conditions, and it lists "life insurance premiums" as an example of premiums you can't claim a deduction for.[1]
For policies held by a business, the ATO's Taxation Ruling IT 155, dated 28 June 1968, lists the policy types as "whole of life, endowment, term (or temporary) life assurance, sickness and accident insurance". It says "there is no cause to depart from the practice of treating premiums on life (and endowment) policies as being non-deductible under section 51 and the proceeds as non-assessable", and it applies a purpose test to "accident or term" policies.[2] Which of these a particular policy is, for tax purposes, is a question for a tax agent. See the key person section below.
On payouts, the ATO's list of capital gains tax exemptions includes "some payouts under a general insurance policy, life insurance policy or annuity instrument, such as payments from the maturity of a life insurance policy".[4] That list is about capital gains tax. It does not say how any particular payout is treated.
Treatment depends on who owns the policy, how the premium is paid and what the policy is for. A registered tax agent or accountant can say how it applies to you. Our life insurance guide explains how the cover works.
Is income protection tax deductible?
The ATO says: "Only the premiums you pay to protect your income (salary and wages) are deductible. This is known as income protection or continuing salary cover."[1] Its income protection payments page adds that "the premiums you pay to protect against the loss of your employment income are deductible".[5]
There are limits in the ATO's wording. It says you can't claim a deduction if the policy "is through your superannuation fund and the premiums are deducted from your contributions" or "pays you a capital sum to compensate you for injury".[1]
Some policies bundle covers. The ATO gives an example of a policy with an income protection part and a personal injury part, and says the personal injury part is "not deductible because it is capital in nature".[1]
Whether a premium is deductible depends on how the policy is set up, who pays for it and what it covers. A registered tax agent or accountant can say how it applies to you. Our income protection guide explains the cover itself.
Are income protection payments taxable?
The ATO says: "If you receive a payment to replace your salary and wages under an income protection policy, you must include it in your tax return. This is the case whether you receive a regular payment under the policy or a lump sum."[1]
On where to declare it, the ATO says this "will depend on if tax has been withheld", and that "tax is not withheld from payments the insurer pays directly to the owner of a relevant policy".[5]
This wording is about payments that replace salary and wages. The ATO covers other kinds of payment separately, such as compensation payments.[5] Which applies depends on the policy, how it is held and what it is for. A registered tax agent or accountant can say how it applies to you.
Is TPD insurance tax deductible, and is a TPD payout taxed?
We can't say. The ATO says you can't claim a deduction if the policy "pays you a capital sum to compensate you for injury", and gives examples, not a full list.[1] Whether that test fits a particular TPD (total and permanent disability) policy is a question for a tax agent.
On payouts, the ATO's income protection page says, about payments under an income protection policy: "If you receive a payment for personal injury or total and permanent disability under the policy, the payment will be capital. In these circumstances, the payment might be assessable as a capital gain."[1] Separately, the ATO's list of capital gains tax exemptions includes "compensation or damages received for any" "wrong, injury or illness you or your relatives suffered".[4] Neither page names stand-alone TPD cover. Whether either applies to a particular TPD payout is a question for a tax agent.
TPD cover held in super is different again. The ATO says a disability super benefit may be a one-off lump sum or regular ongoing payments, and "we tax lump sums and income stream payments differently".[6]
Treatment depends on the policy, whether it is held inside or outside super and how the benefit is paid. A registered tax agent or accountant can say how it applies to you. Our TPD insurance guide explains the cover.
Is trauma insurance tax deductible?
The ATO lists "trauma insurance premiums" and "critical care insurance premiums" among the premiums you can't claim a deduction for.[1] The pages we read do not say how a trauma payout is taxed.
Treatment depends on who owns the policy, how the premium is paid and what the policy is for. A registered tax agent or accountant can say how it applies to you. Our trauma insurance guide explains the cover.
Is key person insurance tax deductible?
The ATO ruling we found says it depends on the type of policy and, for accident or term policies, on why the business took it out.[2] We can't say how tax applies to any business.
IT 155, the ATO ruling on "key man" insurance, is dated 28 June 1968. For accident or term policies, the ruling works on the proposition that "in general, insurance moneys are to be considered as received on revenue account where the purpose of the insurance was to fill the place of a revenue receipt which the event insured against has prevented from arising or of any outgoing which has been incurred on revenue account in consequence of the event insured against…" It adds that the proposition "may also be used as a basis for the determination of claims for the deduction of premiums under section 51."[2]
The ruling gives examples where premiums on accident or term policies "would not be deductible", including insurance taken out by one partner on another to provide "funds to buy out his estate's interest in the partnership".[2]
On evidence of purpose, it says "it will be necessary when the question of allowing deductions for premiums is under consideration to make special efforts to determine the purpose for which the insurance was taken out." It also says "the taxpayer might change his plans from time to time and renew the same policy from year to year for varying purposes."[2]
"Revenue" and "capital" are tax terms, and a tax agent can explain them. Treatment depends on the type of policy, its purpose and the business's circumstances. A registered tax agent or accountant can say how it applies. Our key person insurance guide explains the cover.
What about insurance held in super?
Insurer product disclosure statements (PDSs) describe how cover in super is structured. OnePath's OneCare Super PDS says that when you have cover through super, "the Trustee is the owner of the insurance policy and holds it on your behalf as the life insured".[7] It says the Trustee "accepts contributions and rollovers to pay the premiums for insurance policies held through OneCare Super".[8]
On premiums, the ATO says you can't claim a deduction if an income protection policy "is through your superannuation fund and the premiums are deducted from your contributions".[1]
On payouts, the ATO says: "To withdraw money from super you need to have satisfied a condition of release."[3] It says that in most cases a super fund pays "any insurance benefits as a super death benefit to their nominated beneficiary".[9] It also says the tax on a super death benefit depends on factors including whether "you were a dependant of the deceased", whether "it's paid as a lump sum or a super income stream benefit", and "your age and the age of the deceased person when they died".[3] It notes that "superannuation law sets out who a death benefit is payable to, while taxation law sets out how a death benefit is taxed".[9]
Treatment depends on who owns the policy, how the premium is paid and what the benefit is. A registered tax agent or accountant can say how it applies to you. Our life insurance in super guide has more on the structure.
Can a business or self-employed person deduct premiums?
The ATO says a business can "generally claim a tax deduction for most operating expenses associated with running your business in the same income year you incur them".[10] Its list of common business operating expenses includes "insurance premiums, including accident or disability, fire, burglary, professional indemnity, public risk, motor vehicle, loss of profits insurance, or workers compensation".[10] The ATO introduces the list as expenses that are "common in business", not as a full list. The ATO's page doesn't say how that list applies to insurance a business holds on a person's life or health. The ATO ruling we found on that is covered in the key person section.
The ATO also says "you can only claim the business portion of these expenses if they relate to both business and private use".[10]
For policies taken out by a business on someone else, IT 155 says its comments "relate particularly to insurances taken out by employers in respect of employees but, generally speaking, they may be read as applying also to insurances taken out by companies, in respect of another or by a taxpayer in respect of a person otherwise associated with him in business".[2] The key person section above covers its test.
The ATO's income protection page says "Only the premiums you pay to protect your income (salary and wages) are deductible."[1] It does not say how that wording applies to a self-employed person.
Treatment depends on the business structure, who owns the policy and what the policy is for. A registered tax agent or accountant can say how it applies to a particular business. Our business protection insurance guide explains the covers.
Questions to ask your accountant
Read the insurer's PDS and TMD before deciding. You can find them in our PDS and TMD library. We can explain how cover works, but tax questions go to a registered tax agent or accountant. For general information about anything in this guide, book a time with Tony or call 0433 22 77 11.
Sources
Just so you know, Tony Insurance operates under Sustainable Life Solutions (AFSL 536966) and can only give general advice about life insurance. That means we'll tell you what you need to know for you to make a good decision, but we can't give you specific advice or recommendations. It also means that everything on our website is only general information and isn't specific to you.
Toni Smilevski, Authorised Representative 343156 of Sustainable Life Solutions Pty Ltd (AFSL 536966)
Tony Insurance Life Pty Ltd atf Tony Insurance Life Trust (ABN 12 202 794 800) t/a Tony Insurance are Corporate Authorised Representatives of Sustainable Life Solutions Pty Ltd (ABN 66 655 297 886 / AFSL 536966). Tony Insurance is authorised to deal in Life insurance products only. Any mention regarding other products and/or services is provided by external third parties and is done under a referral relationship only.
Any information or advice contained on this website is general in nature and has been prepared without analysing your personal situation, financial needs and objectives. All products and information displayed on this website are subject to insurance policy terms and conditions including eligibility criteria, exclusions and, limitations. You should carefully read the Product Disclosure Statements (PDS) and Target Market Determinations (TMD) of the insurers to ensure that the products fit your needs. A copy of the PDS & TMD documents of the insurers are available on this website or by contacting us.