Is Income Protection Insurance Tax-Deductible in Australia?

Many Australians are surprised to learn that income protection insurance isn’t just about financial security — it can also deliver potential tax benefits. If you hold an income protection policy outside of superannuation, your premiums are often tax-deductible, which can help reduce the cost of protecting your income.

At Covermate Life, we believe understanding how these tax rules work is an important step in making informed insurance decisions. Let’s break it down simply.

What Is Income Protection Insurance?

Income protection insurance pays you a monthly benefit (usually up to 70% of your income) if you can’t work due to illness or injury. It helps cover essential living expenses such as:

• Rent or mortgage repayments

• Utilities, groceries, and transport

• School fees or childcare costs

• Ongoing household expenses

  
  

By maintaining a regular income during recovery, it helps you stay financially stable while you focus on getting well.

Are Income Protection Premiums Tax-Deductible?

In most cases, yes — if your policy is held outside superannuation.

The Australian Taxation Office (ATO) allows you to claim a tax deduction for premiums paid on income protection insurance because it’s designed to replace your assessable income if you can’t work.

You can generally claim a deduction if:

• The policy is held in your own name (not through super).

• The policy provides income replacement (not a lump sum).

• The benefits are paid as regular income, not as a one-off payment.

You can’t claim a deduction if:

• The policy is held inside your superannuation fund (the premiums are paid from your super balance, not from after-tax income).

• The policy includes lump-sum benefits, such as trauma or life insurance, which are not deductible under tax law.

How It Works in Practice

Let’s say you pay $1,200 a year in income protection premiums. If you’re on a marginal tax rate of 32.5%, you could receive a tax saving of around $390, bringing your out-of-pocket cost closer to $810.

This example is for illustration only — your actual tax benefit will depend on your personal circumstances and marginal tax rate.

Inside vs. Outside Super — What’s the Difference?

Feature	Held Inside Super	Held Outside Super
Premiums	Paid from your super balance	Paid from your after-tax income
Tax Deduction	No personal deduction	Usually tax-deductible
Policy Flexibility	Limited definitions & shorter benefits	Broader features & flexibility
Cash Flow Impact	Doesn’t affect take-home pay	Impacts your personal budget

If affordability is your main concern, inside-super cover can be convenient because premiums are deducted from your super balance. However, outside-super policies generally offer better flexibility — and the potential for personal tax deductions.

Things to Keep in Mind

• Tax rules can change, and deductions depend on your personal income and policy type.

• If you receive income protection benefits, they are generally taxable, as they replace your usual salary.

• Always keep premium receipts or statements to make your claim easier at tax time.

• For detailed advice, speak with a qualified tax professional or financial adviser.

Making an Informed Decision

At Covermate Life, we can help you understand how income protection works, the difference between policies inside and outside super, and the general implications of tax deductibility.

We provide general product information only — we don’t provide personal financial or taxation advice. If you’re unsure how these rules apply to your situation, it’s best to consult a registered tax agent or licensed financial adviser.

Key Takeaway

For most Australians, income protection premiums can be tax-deductible when held outside super — making it an even smarter way to protect your income and maintain financial security.

Understanding how the deduction works can help you make an informed decision and potentially reduce the cost of staying protected.

Important Information

This article is for general information only and does not take into account your personal objectives, financial situation, or needs. Before acting on this information, consider its appropriateness and read the relevant Product Disclosure Statement (PDS).Tax outcomes vary based on individual circumstances — seek advice from a registered tax agent or licensed financial adviser.

Talk to Covermate Life

Learn more about income protection insurance and how it may fit into your broader protection strategy. Get quote today.