Skip to main content

Tax-Free Life Insurance Benefits

Any benefit which is paid out under your life insurance policy is paid as a tax-free lump sum to the policy owner.

Under current tax law, a benefit paid to the policy owner under a life insurance policy, is not subject to income tax in the hands of the individual. This means that, following receipt of the benefit, the policy owner is not required to declare the lump sum payment to Inland Revenue, as no liability for income tax for the payment exists.

This is the tax position where the benefit is paid to or in respect of an individual. The situation differs where a policy is owned by a company, and the premiums are met by the company. In that instance the premiums are likely to be tax-deductible to the company, in which case a benefit paid under the policy would be deemed to be assessable income of the company.

Even where the premiums for a life insurance policy on a person’s life are paid by a company (such as the person’s employer), if the policy is owned by the person then any benefit paid out under the policy will be tax-free to the policy owner or to the policy owner’s estate. Where a person’s employer pays the premiums on behalf of an employee, and the employee is the policy owner, the premiums are presumptively subject to fringe benefit tax.

The above is a general summary based on our understanding of current tax law, and it should not be construed as personal tax advice. Please contact your tax adviser for detailed information about your particular tax position.