Having an income protection policy is a smart future investment. It protects you financially in case you’re not fit to work because of injuries or illnesses. But can you claim income protection on your tax return? If so, how can you claim it? And how much can you get from this policy? In this blog post, you will learn everything you need to know about income protection insurance.

Can I Claim Income Protection Insurance on my Tax Return?

Income Protection Insurance

Yes, you can claim income protection insurance or any premiums you paid for your tax return but it depends on the type of your coverage.

Be sure to include the payment you received under your income protection policy. There are also factors that can affect the amount of tax deduction for your protection insurance policy. These include the following:

  • Taxable income
  • Tax rate
  • Premium cost

However, keep in mind that the amount is usually lower when you claim income protection as a tax deduction compared to the original premium you paid for.

In addition, you cannot claim a premium under your policy to compensate for illnesses or physical injuries. For instance, you cannot claim tax deductions on your life insurance, trauma insurance and critical care insurance on your tax return.

Income Protection Insurance Cost

There are no fixed rates for an income protection insurance policy but the average cost can range from $53 to $168.61 depending on your monthly income and your preferred type of cover. There are also several factors that can significantly affect the cost of your policy, such as your:

  • Age
  • Health history
  • Occupation and work environment
  • Sick leave benefits
  • Savings

A reputable insurance company can give you a free quote for your desired income protection insurance policy.

Is Income Protection Policy Tax-Free?

Yes, income protection insurance is usually tax-free or exempted from GST, since it is classified as a financial service. Keep in mind that this rule may change over time. So, it’s best to reach out to your insurance provider to avoid discrepancies in the future.

How do I Claim My Income Protection?

The process for claiming your income protection varies, depending on your policy and insurance provider. But, here are the usual steps to take:

Step 1: Contact your Insurance Provider.

  • First, you may need to verify your account. Your insurance provider may ask some questions about your policy and personal information. These details may include your account number, date of birth and insurance coverage.
  • Your insurance provider may ask for more information about your illness or injury. Make sure to provide the following details:
  • The exact date of your injury or sickness
  • Basic details of your diagnosis (date and who issued it)
  • Work status
  • Work schedule (including the last time you reported to work)
  • Number of working hours per week, leading to injury or sickness

Side note: Some insurance providers have “claim forms” for clients. You just need to complete the form and submit it through their online portal.

Step 2: Prepare and Submit the Requirements.

Most insurance providers in Australia are strict when it comes to complying with requirements. That’s why you need to document everything to make the process easier. For instance, you may need to present the following:

  • Valid ID (a certified copy of your driver’s license, passport and other government-issued IDs
  • A certified copy of your diagnosis report
  • A certified copy of your medical certificate
  • Proof of income

Side Note: If you asked someone else to apply for the claim, be sure the person has a signed authorisation letter for security. Keep in mind that requirements may also vary, so please contact your agent to ensure you provide the right documents.

Step 3: Wait for the Assessment.

Once you have completed everything, you just need to wait for the final assessment. Their insurance provider should discuss with you the important details, including the waiting period and the amount of the claim.

When Can You Claim Income Insurance?

When Can You Claim Income Insurance

The waiting period to claim income insurance can take between 14 days to 2 years, depending on your condition and policy. When investing in income protection insurance, it’s imperative to check the waiting period of the policy. Generally, low premiums have a longer waiting period. So, you might want to consider your emergency funds, savings and sick and annual leave benefits when choosing an income protection policy.

How Much Do You Get From Income Protection Insurance

Most income protection insurance can cover up to 75% of your pre-tax income in the first 6 months. However, there are also insurance companies that provide more comprehensive coverage. Some premiums can cover up to 90% of your pre-tax income in the first 6 months, then 70% for a specified time in the following months.

Final Words: Is it Worth Taking Income Protection Insurance?

Yes, having comprehensive income protection insurance is worth it. It provides you with a safety net in case you cannot work because of illnesses or injuries. You cannot predict accidents and, more often than not, unexpected medical bills can deplete your savings. With income protection insurance, you don’t have to worry about these things. It can cover your income which will help you with your daily expenses until you can fully recover and get back to work. Whether you’re a tradesperson or self-employed, an income protection policy can be a good investment.

Note: The material offered here is for informational purposes only. It does not constitute legally binding advice and should not be a substitute for a consultation with an insurance expert.000