One of the most common questions about life insurance in New Zealand is whether the premiums are tax deductible. The short answer: for personal life insurance, no. For some other policies, it depends.
Personal Life Insurance — Not Tax Deductible
Personal life insurance premiums — the kind you take out to protect your family — are not tax deductible in New Zealand.
IRD treats personal life insurance as a private expense, not a business or income-generating one. This applies regardless of whether you’re:
- An employee
- Self-employed or a sole trader
- A company director paying premiums personally
This is also the case for:
- Trauma/critical illness insurance premiums
- Total and permanent disability (TPD) insurance premiums
- Mortgage protection insurance premiums
There are no personal tax credits for these either — unlike, say, charitable donation tax credits.
Income Protection Insurance — May Be Deductible
Income protection insurance is different from life insurance, and the tax treatment is more complex.
If structured as a personal policy:
- Premiums are generally not deductible
- Benefits received are generally not taxable
If structured through a business (common for self-employed and company directors):
- Premiums may be deductible as a business expense
- Benefits received are treated as taxable income (because the deduction has already been claimed)
The tax position depends on how the policy is owned and who receives the benefit. IRD’s position is that if the premium is deductible, the benefit is taxable — the two go together. Most people opt for the personal structure (no deduction, tax-free benefit) for income protection.
Key Person Insurance — May Be Deductible
Key person insurance is held by a business to protect against the financial loss of a critical employee or director dying or becoming disabled.
Deductible if:
- The purpose is to compensate the business for lost revenue or the cost of finding a replacement
- The business owns the policy and receives the benefit
Not deductible if:
- The purpose is capital in nature (e.g. to fund a buy-sell agreement)
If the premiums are deductible, the benefit received by the business is taxable income.
This is a complex area. IRD’s IS 11/06 interpretation statement covers the rules in detail. Getting accounting advice is strongly recommended.
Buy-Sell / Shareholder Protection — Not Deductible
Shareholder protection insurance (where partners or shareholders insure each other’s lives to fund a buy-sell agreement) is generally not tax deductible. The purpose is capital — acquiring a business interest — rather than income-producing.
Life Insurance as a Fringe Benefit
If an employer pays life insurance premiums on behalf of an employee, this may be subject to Fringe Benefit Tax (FBT). This is relevant for group life insurance schemes.
FBT is paid by the employer, not the employee. See Fringe Benefit Tax NZ for more.
Summary Table
| Insurance type | Personally owned | Business owned |
|---|---|---|
| Life insurance | Not deductible | Not deductible |
| Trauma/TPD insurance | Not deductible | Depends on purpose |
| Income protection | Not deductible (benefit tax-free) | May be deductible (benefit taxable) |
| Key person insurance | N/A | May be deductible (benefit taxable) |
| Buy-sell/shareholder protection | Not deductible | Not deductible |
What You Can Do
While premiums aren’t deductible, there are strategies to make insurance more affordable:
- Review your cover regularly — over-insurance is common and unnecessary
- Shop around — premiums vary significantly between NZ insurers for the same cover
- Work with an adviser — they can structure policies for maximum value and ensure you’re not paying for cover you can’t claim
- Consider level premiums — locking in level premiums when young avoids the sharp increase in stepped premiums as you age
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