Your beneficiaries will generally not pay tax on a life insurance benefit payout when you own your own policy.
Accordingly, premiums paid for your life insurance policy are usually not tax deductible (you cannot claim it on your individual tax assessment). The exception to this is when a life insurance policy is held by a superannuation fund, in which case the superannuation fund may be able to claim a tax deduction on your behalf. Many funds may even give you the percentage discount upfront.
Payout: whether or not the actual payout is taxed or not depends on several criteria, including how the benefit is paid, and whether it is to a tax dependant/non-dependant, or to the deceased estate’s trustee.
It is worth noting that your payout may be delayed as the benefit is paid to your super fund, who then pays your beneficiary(s). Death benefits paid out to anyone who isn’t a dependant may be taxed.
If you take out life insurance as a business owner and are seeking cover for revenue purposes, benefits paid are normally considered a form of income and will be taxed accordingly. However, should you decide to take out life insurance to cover your business’s capital, such as settling debts in the event of death, the benefit will generally not be subject to income tax.
The information listed above is to be used as a guide only. It is recommended that you consult a tax professional for independent advice relating to particular tax implications of life insurance, as everybody’s situation is unique.