Life Insurance Benefits Taxable – Tax treatment on Life Insurance
You can take out life insurance either as a standalone policy or through superannuation. Tax treatment is different on each of these categories. When taking out a cover, it is wise to understand what life insurance benefits taxable.
Premium payments taken out on life insurance cover outside of superannuation are not tax deductible. However, the benefits on these covers are generally tax deductible. If the premiums are funded through superannuation, the payments are fully tax deductible. Benefit payments on life policies taken out under superannuation can attract high taxes especially if payments are made to non-dependents.
Tax Deductibility On Different Policies
Australian insurers do not offer whole or universal insurance; however, they have several products aimed at providing customers with relief during critical times and even in the event of death. Tax treatment on each of them is again different. Policy premiums on income protection are generally tax deductible. Diagnosis or trauma insurance is not tax deductible. TPD, when taken out as a standalone policy is generally not tax deductible, and the same applies to life insurance.
A different set of rules applies to TPD and life insurance under different circumstances. For instance, if you take out TPD or life insurance under superannuation and these are funded through self-employment or by your employer, then the premiums will be tax deductible. Income protection premiums are generally tax deductible whether taken out under superannuation or a standalone policy. Given these tax treatment procedures, you need to consider the implications so as to make informed choices. You can also take out policies that will give more tax advantages.
Life Insurance Through Superannuation
To maximize on your tax advantage and to reap tax benefits, you can take out life insurance through superannuation. Luckily, superannuation fund life is now available for both employees and the self-employed. In the past, it was reserved for senior employees, large companies and the public service. Once mandatory employer superannuation came into effect, all employees except those on casual status joined super funds.
Policy holders and those interested in taking out policies under the super fund should bear in mind that covers taken out under superannuation may not be adequate. They should consider other ways to supplement the covers or add extra features. It is also important to note that the life insurance benefits may be taxable if beneficiaries are not financially dependent on the policy holder or if they have not attained the age of 15. If any of these conditions apply, the tax applied can be as high as 16.5 percent. Read: Understanding the Pros and Cons Of Income Protection Australian Super
Indeed, you can reap tax advantages from life insurance policies. However, you should not merely base your decision on these benefits. Insurance needs ought to be focused on protecting your family and meeting your financial obligations. Again, you must bear in mind that taxation policies are ever changing. You cannot base your decisions entirely on this. Remember that your insurance needs in most cases keep growing as you go through different stages in life. Ensure that you get sufficient cover, to know more information click here.