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.
Premium offset is a clause in some income protection policies that reduces the monthly benefit by the tax saved on premium deductions. It prevents over-insurance by ensuring your net position does not improve while on claim.
Not every policy includes premium offset. Agreed value policies typically do not; indemnity policies often do. Always check the PDS.
| Calculation method | What it deducts | |---|---| | Tax-saving offset | Marginal-rate tax saving on the premium, spread monthly across the benefit | | Gross premium offset | The full premium amount, spread monthly across the benefit | | No offset | Benefit paid at full sum insured regardless of premium deductions |
With a gross premium offset method instead, the deduction would be $2,000 ÷ 12 = $167 per month, producing a net benefit of $5,833.
Look for clauses titled:
The wording varies by insurer. The Adviser Guide or PDS section on claim calculation is usually the clearest source.
The offset is a structural feature, not a hidden fee. The trade-off is usually a slightly lower premium for the offset version compared to a no-offset equivalent. Authority for income protection deductibility and the offset principle: Taxation Ruling TR 2003/7 and section 8-1, Income Tax Assessment Act 1997.
Rachel pays $3,000 annually for income protection and claims it as a tax deduction, saving $1,110 at her 37% marginal rate. Her policy has a premium offset clause reducing her $6,000 monthly benefit by $93 ($1,110 ÷ 12), resulting in a net benefit of $5,907 per month.
Tom's agreed value policy doesn't include premium offset. He pays $2,500 in premiums, claims a $925 tax deduction (37% rate), and receives his full $7,000 monthly benefit without any reduction if he claims.
Lisa's indemnity policy has premium offset calculated on gross premium. Her $2,000 annual premium reduces her $5,000 monthly benefit by $167 ($2,000 ÷ 12). Combined with the $740 tax saving, her effective monthly benefit cost is reduced, but so is her benefit.
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