Is Income Protection Insurance Tax Deductible in Australia?

22 October 2025
|In Uncategorised
|By Mojo Dojo

Most of us don’t think too much about what happens if you’re suddenly unable to work. But if you rely on your income to pay rent, keep food on the table, and look after your family, it’s something worth considering before it’s too late. That’s where income protection insurance plays a pivotal role. And yes, in many cases, you can claim it as a tax deduction in Australia. 

What is Income Protection Insurance? 

In essence, income protection insurance is a type of policy that, in the event you’re unable to work due to injury or prolonged illness, will help cover core living expenses such as rent, mortgage, bills, groceries, and education fees during the period in which your earnings are interrupted by health issues.

The policy typically works by paying out a monthly benefit of up to 70%–90% of your pre-tax income (subject to limits), starting after a waiting period (typically 14 to 90 days) and continuing for a set benefit period, such as two years, five years, or up to the age of 65.

Generally, income protection insurance is important for those who rely on their work to pay for living expenses, i.e., sole earners, self-employed individuals, small business owners, or those with debts and dependents.

For more information on income protection insurance, check our other blogs.

Is Income Protection Insurance Tax Deductible in Australia?

Generally, yes, but a few exclusions apply. If the policy is taken out personally to protect your salary or wage income, and you pay the premiums yourself (not via your superannuation), you can claim the cost of the premiums as a work-related expense on your tax return. However, it’s only for the portion that covers income protection (not for any bundled life or trauma insurance).  

For example, say your total premium is $180 per month, and of that, $60 relates to income protection cover. In this case, you would only be able to claim a deduction for the $60 portion, not the full $180. 

As a general rule of thumb, it’s important to compare different income protection policies to make sure your pre-tax income sufficiently covers you if you’re hit with an unexpected injury or illness. 

How Tax Deductions Work for Income Protection Insurance

When you claim the premiums as a deduction, it reduces your taxable income, meaning you might pay less tax overall. But here’s what’s important to know:

  • Payments you receive from the policy (the monthly benefit) are considered taxable income. So, while the premiums are deductible, the payouts themselves aren’t tax-free.
  • If your policy is through your super fund, it’s a bit different. You can’t personally claim those premiums as a tax deduction. The super fund does it on your behalf. But that means you also won’t be able to claim them again on your personal tax return.

As always, please consult with an insurance broker or the ATO to validate your eligibility and accurately calculate your claim. 

Common Misconceptions

A few myths tend to float around about income protection and tax deductions. Let’s clear up a few of the big ones:

  • Myth: You can claim any insurance policy that protects your income. 

Fact: Not true. Only income protection premiums are deductible, not policies like trauma, life, or TPD (total and permanent disability) insurance.

  • Myth: If it’s in your super, you can claim it personally. 

Fact: Nope. Super funds may claim it internally, but you can’t list it on your own return.

  • Myth: It’s not worth it if you’ve got savings. 

Fact: Maybe, maybe not. Think about how long those savings would last if you had no income for six months or more. Most people find that income protection buys them peace of mind.

Why Getting Professional Advice Matters

Income protection insurance might not always be front of your mind when considering insurance policies to invest in, but it’s one of those things that can make a world of difference when life blindsides you. 

And if you can also claim a tax deduction on top of that? Even better. Just remember:

  • If you personally pay for the policy to protect your income, it’s likely tax-deductible.
  • If it’s through your super, it’s not.
  • And if it’s bundled with other cover, only the income protection portion counts.

Before tax time rolls around, make sure you’ve got the numbers right, and don’t hesitate to get advice from a professional. Because at the end of the day, the goal’s simple: to keep money coming in when you can’t work. 

If you need assistance in finding the right coverage for your needs, do not hesitate to reach out to our team of insurance brokers at Morgan Insurance Brokers. We’re dedicated to ensuring your financial safety and stability. Contact us today.