Life insurance (death) payouts can be tax free, particularly when they are paid to someone who is dependent on you, such as children under the age of eighteen. Trauma (critical illness) insurance and total and permanent disability (TPD) insurance benefits are also typically paid tax free.
However, claim payouts made under income protection insurance are typically taxed.
This is NobleOak’s current understanding of the general tax treatment of life insurance, TPD and income protection benefits. You should seek specific advice from a tax professional to understand whether this applies to you.
When naming an insurance beneficiary, you will need to check your policy to establish who counts as a financial dependant. Spouses are commonly accepted, but there are more restrictions around children over the age of eighteen, who are often not regarded as financial dependants when it comes to receiving a lump sum and therefore may be taxed. If life insurance is purchased through a superannuation fund, the benefits will be paid to the trustee.