Claiming Income Protection Insurance in 2025

Published: July 2025

Paying for peace of mind? Good. Paying too much tax? Bad. Here’s how income protection insurance can reduce your tax bill while protecting your pay packet. And all from that great tax return provider ... Gotax.

What Is Income Protection Insurance?

It’s a policy that pays you a regular income if you're unable to work due to illness or injury. Think of it as a financial life jacket when things get rough.

Can You Claim the Premiums?

Yes—but only if you pay them out of your own pocket. If your premiums are paid from your super fund or by your employer, sorry, no tax love for you.

What Is Claimable?

• Income protection premiums paid by you (not through super) are Tax deductible.

• If it’s a bundled policy (e.g. life + income), only the income protection portion is tax deductible.

Tip: Ask your insurer for a breakdown if you're unsure what you're actually paying for.

What Isn’t Claimable?

• Premiums paid from your super fund are not tax deductible to you.

• Life, trauma, or critical illness cover

• Premiums paid by your employer

• Policies that pay lump sums only (not ongoing income)

How to Claim It

1. Check Your Policy

Make sure it actually covers income protection and not just life or trauma insurance.

2. Check Who Paid

You must have paid it personally—not your super, not your boss.

3. Get the Paperwork

Grab your insurer’s statement or receipt. If it’s a mixed policy, get the portion relating to income protection.

4. Claim It in Your Tax Return

Head to the "Other Deductions" section and enter the total income protection premium you paid.

Does It Prefill on My Tax Return?

Nope. You’ll need to plug in the numbers yourself and hang on to your documentation for five years.

20 Q and A's on Income Protection and your Income Tax

How does income protection insurance work for tax purposes?

Income protection insurance pays you a regular income if you can’t work due to illness or injury. The premiums you pay can usually be claimed as a tax deduction if the policy is held in your own name and covers loss of income. 

Can I claim a tax deduction for income protection insurance premiums?

Yes, you can generally claim a tax deduction for the premiums you pay on an income protection insurance policy, as long as it’s to replace your income if you can’t work. 

Is the payout from income protection insurance taxable?

Yes, if you receive a payout from your income protection insurance, it’s treated as assessable income and you’ll need to include it in your tax return. 

Can I claim a tax deduction for a policy that covers both income protection and life insurance?

If your policy bundles income protection with life or trauma cover, only the portion of the premium relating to income protection is eligible for a tax deduction.  The rest isn’t.

What if my employer pays for my income protection insurance?

If your employer pays the premiums and it’s a fringe benefit, you can’t claim a tax deduction for those premiums yourself.

Can I claim a tax deduction for income protection insurance held inside super?

No, if your income protection insurance is paid from your super fund, you can’t claim a tax deduction in your personal tax return. 

Are there any limits to the tax deduction for income protection insurance?

There’s no set dollar limit, but you can only claim the part of the premium that relates to replacing your income. 

Can I claim a tax deduction for income protection insurance if I’m self-employed?

Yes, self-employed folks can claim a tax deduction for income protection insurance premiums, just like employees. 

What if I pay my premium in advance for several years?

You can only claim a tax deduction for the portion of the premium that relates to the current financial year. 

Can I claim a tax deduction for income protection insurance if I’m not working?

No, if you’re not earning any income, you can’t claim a tax deduction for income protection insurance premiums. 

Is GST included in the tax deduction for income protection insurance?

If you’re not registered for GST, you claim the full premium as a tax deduction. 0.1 If you are registered, you claim the net amount (excluding GST). 

Can I claim a tax deduction for income protection insurance if I only work part-time?

Yes, as long as the policy is to replace your income, you can claim a tax deduction for the premiums, even if you’re part-time. 

What records do I need to keep for my tax deduction claim?

Keep your policy documents and receipts for all premiums paid. The tax man loves paperwork!

Can I claim a tax deduction for income protection insurance for my spouse?

No, you can only claim a tax deduction for premiums on a policy that covers your own income.

What if my policy covers other benefits, like trauma or TPD?

You can only claim a tax deduction for the portion of the premium that relates to income protection.  The rest is out.

Can I claim a tax deduction for income protection insurance if I’m a contractor?

Yes, contractors can claim a tax deduction for income protection insurance premiums, just like employees and sole traders.

Do I need to reduce my tax deduction if my policy pays a lump sum?

If your policy pays a lump sum for injury or illness, that part of the premium isn’t eligible for a tax deduction.  Only the income replacement bit counts. 

Can I claim a tax deduction for income protection insurance if I’m on workers’ comp?

You can still claim a tax deduction for your premiums, but any payout from workers’ comp is separate and may affect your insurance payout.

What if I pay my premium monthly instead of annually?

Doesn’t matter! You can claim a tax deduction for the total premiums paid in the financial year, whether monthly or annually. 

Can I claim a tax deduction for financial advice about income protection insurance?

Yes, if the advice is about the tax implications of your income protection insurance, you can claim a tax deduction for that advice fee.

What Records to Keep

• Policy documents

• Premium receipts or annual statements

• Breakdown of bundled policy (if relevant)

Example

You pay $400 this year for income protection (outside of super). Come tax time, you claim that $400. Your taxable income drops by that amount, which means less tax to pay and a bit more coin for your next holiday.

Tips to Get the Most from Your Deduction

• Monthly premiums? Add up all 12.

• Not sure what you're covered for? Call your insurer.

• If you pay through super, the fund might claim it—you can't.

Final Word

If you’re paying for income protection yourself, don’t let the deduction go to waste. Just make sure you’re claiming the right bit, keep the right papers, and pop it in the right spot on your return.

Gotax makes claiming deductions like this easy.

Start your 2025 tax return at https://www.gotax.com.au/start-now

More Great Tax Stuff:

Errores Comunes en tu Declaración de Impuestos Australiana

Can You Claim Income Protection Insurance on Tax? 2025 Guide