Income Protection Tax NZ: Premium Deductibility
In New Zealand, Inland Revenue lists the cost of income protection insurance as a claimable expense "if the insurance payout would be taxable", and says to ask your insurer. Life and funeral premiums are not on its list. Income protection payouts are "generally taxable", while Inland Revenue says "generally, insurance payouts are excluded income". This is general information, not tax advice.
In short
- Income protection premiums can be claimed where the payout would be taxable. Inland Revenue's list for people who "only earn income that's already taxed like salary, wages or investment income" includes them, and says to ask your insurance provider (Inland Revenue: Non-business expenses, last updated 29 October 2025).
- Life and funeral premiums are not on that list, so they are generally not claimed.
- An income protection payout is to replace lost income, so "it's generally taxable". Life insurance payouts are generally excluded income (Inland Revenue: Insurance payouts).
- Where an employer pays or owns the policy the rules change, and Inland Revenue has published separate answers for each case.
- Confirm your own position with an accountant. Where the sources are silent, this page says so.
A tax deduction for an insurance premium reduces your taxable income by the amount you paid, so the saving is the premium multiplied by your marginal tax rate. The deduction and the taxation of the payout are linked: Inland Revenue ties the claim to whether the payout would be taxable, because the cover replaces income that is itself taxed. A policy that pays out a lump sum on death or serious illness works differently. It does not replace earnings, and Inland Revenue's published guidance treats those payouts differently. The sections below separate the two sides, premium and payout, and then show how ownership changes the answer.
The premium side: what Inland Revenue lets you claim
Inland Revenue's page on non-business expenses lists what a person who only earns taxed income such as salary, wages or investment income can claim. The list has five items: the cost of preparing your tax return, "the cost of income protection insurance if the insurance payout would be taxable", commission charged on interest and dividend income, interest on money borrowed to invest, and interest paid to Inland Revenue for late tax. It adds: "Ask your insurance provider if your income protection insurance is deductible", and describes this as "loss of earnings" insurance. You claim in your end-of-year assessment under non-business expenses, and may be asked for proof such as a receipt (Inland Revenue: Non-business expenses).
Three consequences follow from the page's wording:
- The test is whether the payout would be taxable, not your job title. The page is written for people with taxed income such as salary and wages, so it does not support the common claim that salaried employees can never claim income protection premiums. It also does not say every policy qualifies.
- Life, funeral, trauma, total and permanent disability and health premiums are not named. We did not find them on the list.
- Self-employed and business owners are a separate route. Inland Revenue's page points people in business to its business-expenses guidance. We could not source a statement on income protection there, so a self-employed person should ask an accountant.
The payout side: what is taxed
Inland Revenue's guidance on insurance payouts says "generally, insurance payouts are excluded income". It says income protection is the exception: "As this amount is to replace lost income, it's generally taxable". For personal sickness insurance, amounts paid are "generally excluded from being taxable income", but "if the amount paid out is calculated in reference to loss of earnings this may be classed as taxable income" (Inland Revenue: Insurance payouts, page dated 28 April 2021). Write "generally not taxable income", not "tax-free": Inland Revenue says "generally".
Its published answer on employer-provided cover (QB 18/04) adds the general reasoning: payments that replace income, or that are regular payments for living expenses, are likely to be income, while "other lump sum and reimbursing claim payments are unlikely to be income", for example a lump sum for the loss of a limb or a payment reimbursing medical expenses (Inland Revenue: QB 18/04).
The matrix: personal and business-owned cover
| Cover and who pays | Premium | Payout |
|---|---|---|
| Life or funeral insurance, you own and pay | Not on Inland Revenue's claimable list, so generally not claimed | Generally excluded income (IRD) |
| Term life, employee owns, employer pays the premium | Employer generally deducts; premium treated as salary or wages, so PAYE applies; no FBT | Lump sum not taxable income of the employee or estate (QB 18/02) |
| Term life, employer owns for the employee's benefit | Employer generally deducts; not PAYE; subject to fringe benefit tax | Death lump sum not taxable income of the employee or estate (QB 18/03) |
| Income protection, you own and pay | Claimable where the payout would be taxable; ask your insurer | Generally taxable (IRD) |
| Income protection, employee owns, employer pays | Employer generally deducts; not subject to PAYE | Income to the employee, and assessable where calculated on lost earnings (QB 18/04) |
| Trauma or critical illness, lump sum | Not named on the claimable list | Not named in the IRD payout page. In the employer-paid case, lump sums are unlikely to be income unless they compensate lost income (QB 18/04). Ask an accountant |
| Key person or shareholder protection owned by a business | No source on file | No source on file |
QB 18/02, 18/03 and 18/04 are Inland Revenue "Questions We've Been Asked" dated 23 February 2018 on employer-provided insurance. Key person and shareholder arrangements are fact-specific and need an accountant; our guide to business life insurance tax is the starting point. For how group and individual cover differ, see group versus individual life insurance.
What a deduction is worth
If a premium is claimable, the saving is the premium multiplied by your marginal rate. These are the individual rates shown on Inland Revenue's page for the 2025-26 year (from 1 April 2025); we did not find rates for 2026-27 on that page, so check for changes (Inland Revenue: Tax rates for individuals).
| Income | Rate | Saving per $1,000 of claimable premium |
|---|---|---|
| $0 to $15,600 | 10.5% | $105 |
| $15,601 to $53,500 | 17.5% | $175 |
| $53,501 to $78,100 | 30% | $300 |
| $78,101 to $180,000 | 33% | $330 |
| $180,001 and over | 39% | $390 |
The last column is arithmetic on those rates. It assumes the premium is claimable in full, which is the thing to confirm first. The trade-off to understand is that a policy whose premium you can claim is a policy whose payout would be taxable, so a benefit paid while you are off work would be taxed. Plan for it. Our guide to income protection waiting and benefit periods and the income protection cost analysis cover the settings that change the premium.
Common mistakes
- Claiming life or funeral premiums. Inland Revenue's list does not include them.
- Not claiming an income protection premium you can. Because the page says to ask your insurer, ask early, before the tax year ends.
- Calling every payout "tax-free". Income protection payouts are generally taxable, and Inland Revenue says "generally" even for life cover.
- Mixing ownership. Who owns the policy and who pays the premium changes the answer, as the matrix shows. See the guide for the self-employed.
- Using a QB for the wrong case. QB 18/03 covers employer-owned term life. It does not apply to a policy you own personally.
Where Momentum's products fit
Momentum Life's two products are personal life products: Funeral Insurance (aged 40 to 75, no health questions, benefit $3,000 to $30,000) and Quick Life (aged 18 to 65, $50,000 to $300,000 of cover). Neither is income protection. Their premiums are not on Inland Revenue's claimable list, so treat them as generally not claimed, and ask an accountant about your position. Funeral Insurance pays only for accidental death in its first 24 months (any other death in that window pays no benefit and all premiums are refunded), and total premiums can end up larger than the benefit. Quick Life excludes pre-existing conditions and suicide for the first 2 years. Momentum Life Limited holds an A.M. Best financial strength rating of B (Fair), a range its own scale calls "Vulnerable" (Momentum Life: Financial strength). See the Funeral Insurance plan page, the Quick Life plan page, the funeral insurance hub and the guaranteed acceptance hub. Income protection is fully underwritten, so guaranteed acceptance does not apply to it, and an adviser is the route.
When to see an accountant or an adviser
Take a tax question to an accountant, and an insurance-structure question to a licensed adviser. The two work together. The accountant can confirm whether a premium is claimable for your income mix, and the adviser can ask the insurer whether the policy's payout would be taxable. Start a free review to speak to a licensed adviser. QuoteHub is a Momentum Life partner. Financial advice is provided by Craig Smith Business Services Limited, trading as Smiths Insurance & KiwiSaver, a licensed Financial Advice Provider (FSP712931). See how we are paid. This page is general information about tax, not tax advice.
Frequently asked questions
Is life insurance tax deductible in NZ?
Life insurance premiums are not on Inland Revenue's list of claimable non-business expenses, so they are generally not claimed. Confirm with Inland Revenue or an accountant.
Is income protection tax deductible?
Inland Revenue lists the cost of income protection insurance "if the insurance payout would be taxable" and says to ask your insurance provider.
Do I pay tax on a life insurance payout?
Inland Revenue says "generally, insurance payouts are excluded income". For death lump sums under employer-provided term life, QB 18/02 and QB 18/03 say they are not taxable income of the employee or estate.
Is an income protection payout taxed?
Generally yes. Inland Revenue says it replaces lost income, so "it's generally taxable".
What about trauma cover?
The Inland Revenue pages we read do not name it. In the employer-paid case QB 18/04 says lump sums are unlikely to be income unless they compensate lost income. Ask an accountant before relying on it.
References
- Inland Revenue: Non-business expenses, last updated 29 October 2025, retrieved 20 October 2026
- Inland Revenue: Insurance payouts, last updated 28 April 2021, retrieved 20 October 2026
- Inland Revenue: Tax rates for individuals, retrieved 20 October 2026
- Inland Revenue: QB 18/02, term life insurance taken out by employee with employer paying the premiums, 23 February 2018, retrieved 20 October 2026
- Inland Revenue: QB 18/03, term life insurance taken out by employer for the benefit of an employee, 23 February 2018, retrieved 20 October 2026
- Inland Revenue: QB 18/04, personal sickness and accident insurance taken out by employee with employer paying the premiums, 23 February 2018, retrieved 20 October 2026
- Momentum Life: Financial strength, retrieved 20 October 2026
- Momentum Life: Funeral Insurance Policy Wording, 17 August 2023, retrieved 17 October 2026
- Momentum Life: Quick Life Insurance Policy Wording, November 2025, retrieved 17 October 2026
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Explore related pages: Life Insurance, Income Protection, Health Insurance, Trauma Insurance, Free Will.