Insurance is one of the most important — and most misunderstood — elements of personal and business financial planning in Australia. Misconceptions about what policies cover, what is deductible, and what happens to your super-linked insurance can lead to significant underinsurance or missed tax claims. Here are five persistent insurance myths debunked for 2026.
Myth 1: "My Super Fund's Default Insurance Is Enough"
Most Australian superannuation funds provide default life insurance and total and permanent disability (TPD) cover. However, default cover amounts are typically small — often less than $200,000 — and are calculated to be sufficient for a single person with no dependants, not a homeowner with a mortgage, a spouse, and children. Review your super fund's default cover amount against your actual financial obligations and obtain additional life, income protection, or TPD cover if needed. Insurance inside super has benefits (premiums paid from pre-tax super) but limitations (TPD definition may be "any occupation" rather than "own occupation").
Myth 2: "Income Protection Pays 100% of My Salary"
Income protection insurance in Australia covers a maximum of 70% of your pre-disability income (some policies allow up to 75%). The 70% cap is intentional — it preserves the incentive to return to work. You need to plan for the 30% income gap in your budget. Also important: income protection benefits you receive are assessable income and must be declared in your tax return. The premiums, however, are tax deductible if the policy is held outside super.
Myth 3: "Life Insurance Premiums Are Always Tax Deductible"
Life insurance premiums held outside super are not tax deductible for individual taxpayers in Australia. However, income protection insurance premiums held outside super are fully deductible. Inside super, all insurance premiums (life, TPD, income protection) are paid from pre-tax contributions, providing indirect tax savings. TPD "own occupation" cover inside super is no longer available as an industry standard — only "any occupation" TPD is available through most super funds.
Myth 4: "Home and Contents Insurance Covers Home Business Equipment"
Standard home and contents insurance policies typically exclude or severely limit coverage for business equipment and business activities conducted from home. If you work from home or run a business from your premises, you need a separate business insurance policy (or a home-based business endorsement) to cover business equipment, public liability for clients visiting your home, and professional indemnity. Do not assume your standard home policy covers your business laptop or a client who slips in your driveway.
Myth 5: "I Don't Need Private Health Insurance Because Medicare Covers Everything"
Medicare covers public hospital treatment as a public patient and a rebate on GP and specialist visits — but not dental, optical, physiotherapy, ambulance, or private hospital treatment (including choice of surgeon). Australians earning over $93,000 (singles) or $186,000 (families) who do not hold hospital cover also pay the Medicare Levy Surcharge (1-1.5% of income) — which typically costs more than basic hospital cover. Lifetime Health Cover loading applies 2% per year after age 31, meaning delaying private health insurance costs more over time.
Frequently Asked Questions
Is income protection tax deductible in Australia?
Yes. Income protection insurance premiums paid outside superannuation are fully tax deductible for Australian taxpayers under section 8-1 of the Income Tax Assessment Act 1997. Premiums inside super reduce your taxable concessional contributions indirectly. Benefits received from income protection policies are assessable income regardless of whether the policy is inside or outside super.
What insurance do small business owners need?
Small business owners should consider: public liability insurance (legally required for some industries), professional indemnity insurance (required for professionals giving advice), business interruption insurance (covers lost income if your business cannot operate), key person insurance (life/TPD on the business owner), workers compensation (mandatory if you have employees), and income protection for the owner personally.
Want to review your insurance position and understand the tax treatment of your premiums? Contact AWTS — we help clients integrate insurance into their overall financial and tax planning strategy.
