Key Takeaways
- Income protection premiums are generally 100% tax-deductible.
- Premiums paid within your superannuation are NOT deductible.
- Life insurance and trauma insurance premiums are NOT deductible.
- Any payments received from the policy are taxable income.
The Short Answer
A Big Yes! The ATO recognizes that insurance which replaces your taxable income in the event of illness or injury is a legitimate tax deduction. This means you can claim the full premium you pay for "Income Protection" or "Personal Accident and Sickness" insurance.
Wait—What is NOT Deductible?
This is where most people get confused. You can only claim insurance that is specifically designed to replace your "taxable income." This means you cannot claim:
- Life Insurance: Generally considered a private or capital expense.
- Trauma Insurance: Because it pays a lump sum rather than a regular income stream.
- Total and Permanent Disability (TPD): Even if it's related to work, it is not a direct replacement for regular taxable income.
Income as Taxable Income
Because the premiums are tax-deductible, any payments you receive from the insurance company if you make a claim are considered "taxable income." You must include these payments in your tax return just as you would your normal salary.
Supporting Evidence
Keep your annual statement from your insurance provider. At the end of the financial year, your insurer will send you a summary of the premiums you paid that are tax-deductible. This is the amount you enter into your tax return.
The 2026 Audit Ready Tip
When you're offered "bundled" insurance policies (e.g., life + income protection), ask your insurer for a breakdown of the premiums. Only the income protection portion can be claimed. Make sure your tax return matches the breakdown on your insurance statement.
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