It may come as some surprise, but Income Protection insurance is not always individually owned, in some cases it can be owned by a company either in a superannuation fund or a trust. As it’s not always an easy and straight forward decision to make, it’s recommended you seek advice from a financial planner. Although, Income Protection is always considered tax deductable, if given the right advice, one may reap significant tax advantages.

Income protection insurance owned under superannuation

The main benefit of structuring one’s Income Protection within their superannuation is the lack of out of pocket expense. This is a huge advantage for those with cash flow issue or those who prefer to use their disposable income to lessen their non-deductible debt and use their superannuation to fund for their personal insurance premiums.

Some of the problems incurred in structuring one’s income protection in this way are:

• Contributions will count towards the concessional contribution limit.
•  The Income protection policy will not include optional features such as Trauma benefits.

On the other hand, a benefit of structuring one’s income protection within their Super for the over 55’s is the fact that one could use any claim proceeds to pay a transition to retirement  pension where a 15% tax offset is available to age 59 and tax free thereafter.

Income protection insurance owned under a company or a trust

This option is generally offered to employees under a salary continuance benefit. In this scenario, the company pays for the premiums. The premiums are deductable to the business and if a claim occurs, the benefits are taxable in the hands of the employee. As the premiums are “otherwise deductable” to the employee, there is no Fringe benefit tax liability.