Is income protection insurance tax deductible in New Zealand?

What is income protection insurance?

Income protection insurance is a financial safety net that can provide a regular income if you're unable to work due to sickness or injury. It's designed to replace a portion of your lost earnings, assisting you to cover living expenses and maintain your lifestyle.

Read more about what is income protection insurance.

Is income protection insurance tax deductible in New Zealand?

According to the Inland Revenue Department (IRD), you may be able to claim the cost of your premiums against any loss of income as a tax deduction.¹Yep, that’s right – tax benefits!

However, only the premiums you’ve paid to safeguard your hard-earned salary or wages during the financial year are tax deductible depending on the type of policy you have. Ask a financial professional to find out if your income protection insurance is deductible (can be claimed as an expense).

Keep in mind that if you receive any payments (monthly benefits) under an income protection policy, then those may also need to be included in your next tax return lodgement. Since that money acts as a replacement for any loss of income, it may get taxed also.

Be sure to keep detailed records of your income protection insurance premiums to include in your tax return and chat to a professional if you have any questions.

Who is eligible for an income protection insurance tax deduction?

Depending on the policy you have, most working Kiwis should be able to claim the cost of income protection insurance as a tax deduction, whether they are:

employed individuals
contractors
sole traders
self-employed small business owners

If you are self-employed, a contractor, or a sole trader, you may also be able to claim GST on income protection insurance premiums if you are GST-registered – you can register through IRD.²

Be sure to seek professional advice and consult with a tax adviser or accountant to ensure accurate reporting and compliance with New Zealand tax and GST regulations.

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How can I claim income protection on tax?

If your income protection insurance is tax deductible, contact your insurer to request your tax certificate or letter, confirming the amount you’ve paid on your premiums and the amount that’s tax deductible. Keep this handy as evidence to show your tax agent or accountant for when you lodge your tax return. If you receive an automatic income tax assessment, you can add these expenses in your myIR account.³

Remember to consult official tax resources through IRD or seek professional advice for accurate instructions based on your individual circumstances.

What are the perks of claiming a tax deduction on income protection insurance?

Every dollar counts in this economy (any economy, to be honest!), that’s why claiming a tax deduction for your income protection insurance premiums can be a smart move. Here’s why:

By claiming a tax deduction, you can reduce your taxable income.
Receiving a tax return could improve your cash flow.
The cost of your income protection insurance premiums paid can end up being less, as some may be reimbursed to you.

Seek professional advice when evaluating the tax implications of OneChoice Income Protection Insurance.

What you get with OneChoice Income Protection Insurance:

Working New Zealand residents aged 16 – 60 can apply

Whether you’re a rookie to the workforce or a seasoned pro, with OneChoice you can be confident that your lifestyle will be protected. Once your income protection insurance is in place, it will remain active for the term of your policy, so long as you continue to pay your premiums.

Cover for both employees and the self-employed

It doesn’t matter if you’re a sole trader, self-employed or are an employee – you can cover up to 75% of your monthly pre-tax income, up to $15,000 per month. You can use the monthly payments however you like, such as to pay bills and living expenses if a sickness or an injury prevents you from working.

Apply in just one phone call

Just answer a few questions about your work, health, and lifestyle over the phone – no medical or blood tests needed to apply. That's all it takes to get started with protection that looks out for you (and your income). Piece of cake!

Premiums can be tax deductible

Not only can income protection safeguard your income, but it may also offer a financial win at tax time – sweet as! When tax time rolls around, consider chatting with a tax professional to see if your premiums qualify for a deduction.⁴

Recurrent disability benefit

If you have to make another claim within 6 months of your last claim because your sickness has returned in that time, it’ll be counted as a continuation of the first claim. This means you won’t have to go through another waiting period before you’re paid a benefit. Good as gold!

Rehabilitation benefit

As well as a monthly benefit payment, you can receive an additional reimbursement of up to 50% of your income benefit each month, to a maximum of $3,000, for up to 6 months if you actively participate in a rehabilitation program. Alternatively, you have the option to be reimbursed 6 times the income benefit to support your efforts to return to work.

Choose your waiting period

You can apply for a waiting period of 30 or 90 days – it's up to you! This is the time you’ll have to wait before your income benefit payments are payable.

Flexible benefit period

You can apply for a benefit period of 6 months, 1 year, 2 years, or 5 years. This is the maximum period you can receive your monthly benefits for, if you’re unable to work. Easy as!

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