An income-protection insurance policy can be an invaluable lifeline for you and your family in the event you are incapacitated or are unable to work for one reason or another. The insurance will offer you coverage for most of your income in case of an injury or illness. This cover is also tax deductible so you can claim tax deductions on the premium payments that you make on your cover.
However, in order to claim tax deductions on these payments in time, it is advisable to prepay your income protection insurance. It is possible to prepay up to 12 months worth of insurance premiums so that you can lay claims to the tax deductions for the current tax year.
There is good imperative for taking income insurance protection. Some 25% of Aussies aged over 30 will take at least six months off work due to an illness or injury. You could be one of them. If you can’t afford to live without your pay for 6 months, you should seriously consider taking this protection. If you are covered and are temporarily or permanently incapacitated, your insurer will pay 75% to 80% of your income over a certain time period, depending on the cover you purchased.
Getting Tax Deductions from your Income Protection Insurance
The Australian Taxation Office allows you take a tax deduction on income protection insurance premiums paid separate from your superannuation cover.
To clarify, most of us may already be having an income protection insurance cover but we aren’t even aware. An increasing number of superannuation funds now add income protection cover alongside the other life insurance cover provided so if you will be shopping for an income protection policy outside your superannuation, you might end buying policy that you don’t necessarily need.
With the default super cover, a minimum cover is provided by the superannuation fund and the premium for the cover will be deducted automatically from your super account unless you opt out. The super cover is standardised and will suffice for most people. But you won’t claim tax deductions for these. The income protection premium expenses are only deductible if the policy is outside your super. If you are keen on claiming these tax deductions, it might make sense to move your income protection from your Super into a private cover.
Performing an Income Protection Check
To pursue tax deductions in this area, start by establishing if you have income protection. The insurance cover should also be in the right place so as to serve your financial needs. You can do so in multiple ways:-
- Lookup the insurance section of the latest superannuation statement. Does it have a section on income protection or salary continuance cover? If it does, then you are already covered for this in your Super.
- Go through your employment agreement and check if your employer has an income protection provision as part of the salary package offered.
- In case you have gone through these steps and still don’t have income protection, you can either shop for a private cover with an insurer for which you will claim tax deductions or call up your Super and inquire whether they offer a Super cover.
Need help with your income protection insurance tax deductions? Call an accountant Melbourne professional today for some help.