Are income protection premiums tax deductible?

New Zealand tax treatment of personal insurance follows a broad symmetry. Where a premium is deductible against your income, the benefit that replaces income is taxable. Where the premium is not deductible, the benefit is generally not taxed. It is not a loophole; it is the logic of an income-replacement product.

For most income protection policies in New Zealand — indemnity and loss of earnings structures — the position is that premiums are deductible and the monthly benefit is taxable, typically with PAYE deducted by the insurer before it reaches you. That is why a benefit of 75% of gross income arrives as substantially less than 75%.

Some agreed value policies are deliberately structured the other way: the premium is not claimed as a deduction and the benefit is received without tax. Whether that suits you depends on your marginal rate, your business structure and how you want the cash flow to work. This is a question for your accountant, and it is worth asking before the policy is issued rather than afterwards.

1. 1Establish which structure your policy uses, and confirm it with your accountant rather than assuming.
2. 2If the benefit is taxable, calculate the net monthly amount at your expected marginal rate.
3. 3Compare that net figure against your essential monthly outgoings.
4. 4If there is a shortfall, look at whether a different structure, a supplementary benefit or a different insurer closes it.
5. 5Revisit the calculation whenever your income or your business structure changes materially.

The same symmetry does not apply to life, trauma and TPD cover. Premiums on a personally owned life policy are generally not deductible, and the lump sum paid to a personal beneficiary is generally a capital receipt rather than income. Business-owned versions of those policies have their own treatment and should be structured deliberately.

These are the details that decide whether the cover does what you expected. Read them before you compare on price.

• Whether your policy is indemnity, loss of earnings or agreed value, and how that affects tax treatment.
• Whether the insurer deducts PAYE from the benefit before paying it.
• Whether your accountant has actually claimed the premiums, since deductibility is not automatic.
• Who owns the policy — you, a trust, or a company — because ownership drives the treatment.
• Whether ACC levies and offsets change the net position at claim.
• Whether an employer paying the premium creates a fringe benefit tax liability.

Every New Zealand insurer writes income protection in new zealand to its own wording, and the words are where the money is. Two policies that look identical on price can pay very differently when it matters. Closing that gap is the entire job of an adviser.

• An adviser will structure cover with your accountant rather than after them, which is what keeps the tax position clean.
• For business owners, the interaction between shareholder salary, business expenses cover and personal income protection is where most of the value sits.
• Where cover is transferred between personal and business ownership, an adviser can check whether the change requires new underwriting.
• Tax treatment changes over time; a policy structured a decade ago may no longer sit the way you assume.

There are three ways to buy life cover in New Zealand, and they are not equivalent. You can buy direct from one insurer, which means you see one product range and one underwriting appetite. You can buy through your bank, which usually means a single insurer’s product sold under the bank’s brand, often with narrower definitions. Or you can go through an adviser, who quotes several insurers at once and is required to put your interests first.

The premium you pay is the same either way. Insurers build adviser commission into their pricing whether or not an adviser is involved, so going direct does not get you a discount — it just removes the person whose job is to argue your corner at application and at claim time.

• An adviser can see which insurer is currently taking your health history on standard terms, and which one will load or exclude it.
• An adviser can structure cover across two insurers if that produces a better outcome than putting everything with one.
• An adviser handles the underwriting back-and-forth, and is the person who chases the claim when a family is least able to.
• An adviser has to document why the recommendation suits you, which is a written record you can hold them to.

We are a referral service, not an insurer. We do not quote premiums and we do not sell policies. What we do is put you in front of one licensed New Zealand adviser who can compare the market properly.

1. 1

   You tell us what you are looking at

   The form takes about a minute. Nobody asks for your medical history on a web form — that conversation happens with the adviser, properly, and only once you have decided to proceed.

2. 2

   An adviser calls you

   A licensed New Zealand adviser talks through your situation: who depends on you, what you owe, what you already have in place, and what you are actually worried about.

3. 3

   They compare the market

   The adviser quotes across the major insurers, checks which of them will take your health history on the best terms, and puts the options side by side in writing.

4. 4

   You decide, in your own time

   There is no obligation and no cost to you. If the answer is that you already have enough cover, a good adviser will tell you that.