Most Australians don’t think twice about insuring their car, but a great many risk losing their livelihood by leaving their income unprotected, assuming the premiums will be unaffordable.
But what if the premiums were halved?
The Australian Taxation Office actually encourages you to claim your income protection (or ‘Sickness and Accident’) insurance premiums against your income tax. Even better, If you pay your premium annually in advance before 30 June, you can claim the deduction in the current year.
So shouldn’t you at least find out what it would cost? A typical policy pays 75% of your normal take home pay on a monthly basis if you are unable to work due to sickness or injury. The payments usually start about 30 days after you stop working (when your sick leave has been used up) and stop when you return to work. Doesn’t that sound better than suddenly being without income for months on end?
Of course, the devil is in the details. Do a quick check to see if you qualify.
- Premiums for lump-sum cover for death, injury or disablement are not tax deductible
- Premiums paid through your superannuation fund (when cover is taken out through the fund) are not tax deductible
- So you can’t claim a deduction for:
- life insurance premiums
- trauma insurance premiums
- critical care insurance premiums.
- But some policies cover both income protection and lump sum compensation;
- If you policy covers both – or you’re not sure – contact your insurer and ask them to advise you, in writing, how much of your insurance premium you can claim as a tax deduction.
- And remember, if you make a claim under your Income Protection Insurance, you have to declare the income in your tax return.
BRING IT FORWARD
If you pay your premium annually in advance before 30 June, you can claim the deduction in the current year.
What are your thoughts?
Do you think income protection insurance is a good idea? Did we leave anything out? Is there anything else you’d like to know about income protection insurance? Do you have any other insurance questions?
Join the conversation — leave a comment below and let us know what you’re thoughts are.
[This is an update of an article originally written in December 2014.]