Financial & Tax
Comprehensive definitions of financial and tax terms related to insurance in Australia, including ATO references and tax treatment guidelines
20 terms in this category
Tax Deductible Premium
An insurance premium that can be claimed as a tax deduction, reducing your taxable income. In Australia, income protection insurance premiums are generally tax deductible, while life, TPD, and trauma insurance premiums typically are not.
Tax-free Payout
An insurance benefit payment that is not subject to income tax. In Australia, lump sum payments from life insurance, TPD insurance, and trauma insurance are generally tax-free when paid directly to the insured or their beneficiaries.
Lump Sum Benefit
A one-time payment of the full insured amount, typically paid for life insurance, TPD insurance, and trauma insurance. Unlike monthly benefits, lump sum benefits provide immediate access to the entire benefit amount.
Monthly Benefit
Regular ongoing payments made to the insured, typically from income protection insurance, to replace lost income during illness or injury. Monthly benefits continue for the benefit period specified in the policy.
Income Replacement
The primary purpose of income protection insurance, which is to replace lost earnings when you cannot work due to illness or injury. Income replacement maintains your financial position during disability.
Superannuation Insurance
Insurance coverage held within a superannuation fund, with premiums paid from super contributions. This includes default cover provided by many super funds and voluntary additional cover members can elect.
Retail Insurance
Insurance purchased directly from an insurer or through an adviser, paid for with personal after-tax income rather than through superannuation. Retail insurance typically offers more comprehensive coverage and flexibility than default super insurance.
Salary Sacrifice
An arrangement where you forgo part of your pre-tax salary in exchange for benefits, such as insurance premiums paid by your employer. This can provide tax advantages by reducing your taxable income.
Concessional Contribution
Pre-tax contributions made to superannuation, including employer contributions and salary sacrifice amounts, taxed at 15% in the super fund. Annual caps apply, with excess contributions taxed at higher rates.
Tax Component (Super)
The portion of a superannuation benefit derived from concessional (pre-tax) contributions and taxable earnings. This component may be subject to tax when paid as a benefit, particularly to non-dependants.
Tax-free Component (Super)
The portion of a superannuation benefit derived from non-concessional (after-tax) contributions, which is never taxed when paid as a benefit. This includes personal contributions made from after-tax income.
Death Benefit Tax
Tax potentially payable on superannuation death benefits, depending on the relationship between the deceased and the beneficiary, and the components of the benefit. Tax dependants receive benefits tax-free, while non-dependants may pay up to 17% tax.
Dependant (Tax Definition)
For superannuation death benefits, a dependant includes a spouse, child under 18, financial dependant, or someone in an interdependency relationship with the deceased. Tax dependants receive super death benefits tax-free.
Non-dependant (Tax)
For tax purposes, a person who does not meet the definition of a tax dependant, typically adult children (18+) who are not financially dependent. Non-dependants pay tax on the taxable component of superannuation death benefits.
Cost of Insurance (in Super)
The premiums deducted from your superannuation balance to pay for insurance cover held within your super fund. These costs reduce your retirement savings but are paid from pre-tax contributions.
Premium Offset
A feature where income protection insurance benefits are reduced by the amount of premium tax deductions claimed. This prevents 'double-dipping' where you both claim tax deductions on premiums and receive tax-free benefits.
Negative Gearing (Insurance)
Using income protection insurance tax deductions to reduce taxable income from other sources, effectively subsidizing insurance costs through tax savings. Common for high-income earners and investors.
ATO Ruling
Official interpretations and guidance from the Australian Taxation Office on how tax law applies to specific situations, including insurance-related tax matters. These rulings provide certainty on tax treatment.
Deductibility
The ability to claim an expense as a tax deduction, reducing taxable income. For insurance, deductibility depends on the type of insurance and its purpose - income replacement policies are generally deductible, while lump sum benefit policies are not.
Concessional Tax Treatment
Favorable tax treatment provided by legislation, such as the 15% tax rate on superannuation contributions compared to marginal tax rates up to 47%. This makes superannuation-based insurance tax-effective.