Many Australians overlook the tax deduction they have available for the premiums paid for income protection insurance.
Income protection insurance policies are designed to protect individuals in the event they become unable to work due to sickness or an accident. Policies will generally pay a portion of an individual’s income up to a maximum time period if they are unable to work. Payments are usually subject to a waiting period.
Generally speaking, taxpayers can claim the cost of premiums they pay for insurance against the loss of income. However, any amounts received for lost salary or wages under an income protection insurance policy must be included in an individual’s income tax return.
Where an insurance policy provides for benefits of an income and capital nature, only that part of the premium attributable to the income benefit is deductible. Taxpayers cannot claim a deduction for a premium or any part of a premium fora policy that compensates them for such things as physical injury. Proceeds received from this form of insurance are usually taxfree, provided certain conditions are met.
Individuals cannot claim a tax deduction for a premium where the policy is taken out through superannuation and insurance premiums are deducted from their super contributions.
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