Life insurance is actually not just one policy but an expansive term referring to life cover, income protection, trauma insurance, and total and permanent disability. When you are approaching tax time, it will depend on what kind of cover you have if you are able to claim a tax deduction on your premium. If you pay your cover through your super fund, this will also affect if you are able to claim a tax deduction.
The general rule is that you can claim a deduction on any insurance premium you have against loss of income. According to the Australian Taxation Office, income protection premiums paid as an individual policy can be claimed as a tax deduction. Yet the tax deduction won’t be the same for everyone. The amount you claim is based on something called the marginal tax rate, which is based on your annual income. However, if the protection is paid through your super fund, you cannot claim a deduction on your taxes. The fund will claim the deduction itself, which will be shown in your super fund instead of your tax return.
A life insurance policy that is standalone and compensates you for injury, like trauma insurance cannot be claimed as a deduction. However unlike income protection, a standalone life insurance policy paid through your super fund could be tax deductible, and the fund will claim this deduction. Yet be sure to check with your provider before assuming and conducting the deduction.
If you come to the point in your life where you make a claim on your life insurance policy, the benefits you receive are liable to be taxed, just as your income is taxed. Yet claims on other types of life insurance such as life cover are generally tax-free (also for TPD and trauma insurance). If the policy is held in the super fund, the benefit can be liable to be taxed is the beneficiaries of the fund are not financially dependent.
Yet in all tax circumstances where you are unsure, talking to a tax advisor will be incredibly helpful, and will ensure that you are getting all the deductions you are entitled to. Often when you are conducting your own tax returns, you may miss some of the benefits you could get, so speaking with a professional is always optimal.