How income protection tax deductions work

Yes, fortunately the premium for income protection insurance is generally tax deductible.

So, paying a yearly or half-yearly premium versus a monthly premium before 30 June will result in a higher tax deduction this financial year.

Income protection insurance & tax deductions

David Rice is a 39-year old employed public relations consultant who earns $120,000 per year.

He decides to take out an income protection insurance policy based on an annual premium of $1,540 (1), which can replace up to 75% of his income.

This will entitle him to receive $7,500 per month if he becomes ill or injured and unable to work. Up to 100% of his premium may also be claimed as a tax deduction in the current financial year. Assuming that David is on a marginal tax rate of 38%, this would result in a tax deduction of $585. This represents a net cost to David of just $955.

Literally, for the price of a cup of coffee per day, David can protect his biggest asset - his income. In fact, it's also cheaper than his car insurance which he spends $1116.47 (2) annually on, but with a much larger potential benefit.

The following table illustrates just how much your client can benefit from taking out Income Protection before 30 June.

For this example, assume policy is issued 1 June:

* Based on marginal tax rate of 38%

Who can determine my tax deduction for income protection insurance premiums?

You can claim income protection insurance premiums as a deduction when you do your tax return, either yourself, through a tax agent or an accountant. Your life insurance company should inform you of what amount is deductible in a premium statement which is sent out in July of each year. If you do not have this document make sure you contact your life insurance company immediately.

For income protection, normally the entire premium is tax deductible.

If you would like to get your income protection insurance in place this year, or would like to review your policy, please contact an xLife adviser today.

References:
1. Male, non-smoker, aged 39, professional occupation PR Consultant (Degree Qualified), $7,500 monthly benefit and does not derive other income. Figures based on 2009/10 resident tax rates. Income care premium based on agreed value policy to age 65, monthly frequency, stepped premium, NSW stamp duty.
2. David has a garage for his car in Parramatta (2150) NSW. He drives a 2001 Holden Commodore Executive VX11 Sedan 4A V6, with Comprehensive Motor Vehicle insurance and 60% no claims bonus. He has held his license for 15 years, restricted drivers access and there is no finance on the vehicle. The premium rate for his Motor insurance includes all statutory charges. The Motor insurance premium is $1116.47 annually, $93.05 monthly.

Source: CommInsure 2011

Exclusive Offer! Call xLife on 1300 135 205 today and
save up to 20% on your first year's income protection premium.

April 2011