insurance & lending qus

Hi everyone,

Can anyone help out with the following?

1. I know income protection insurance is tax deductible, but how much of it is deductible? Is it 100% Therefore, you take away 100% of the amount the insurance costs you from your taxable income each year to give you your new taxable income?

2. Are other types of insurances you take out when you are gearing (like trauma cover and life insurance) also tax deductible? And if so, at what rate?

3. When you get your lender to do a valuation of your home so you can borrow against it, how long does this valuation usually last for?

4. If you take out a line of credit to lock in a high valuation for your home (before prices start to fall), do you have to draw down on the loan straight away? And if you wait a while, what is the usual maximum of time lenders will let you have before you have to drawn down on the line of credit (or is there no set time)???

I hope these questions make sense. Thanks to anyone who answers

Cheers

John
 
Hi John

Yes, income protection insurance is tax deductible in full. That is, if the policy is $400pa, for example, the whole $400 is treated as a tax deduction.

Life insurance is not tax deductible to an individual, although, it can be a tax deduction through your superannuation policy. Trauma insurance is not tax deductible.

I stand to be corrected but, I believe that a valuation lasts for about 2 years from something a banker (did I spell that right?)said to me earlier this year.

As I understand a LOC, the bank gives you a limit just as they do with a credit card. It is up to you how much, or how little, you draw down against that limit.

I hope this helps
Dale
 
Insurance premium deductibility for dummies

To decide if insurance premium is deductible I use the following rule. If you make a claim and receive a payment under the policy, would the payment be taxable? If the answer is yes - the premium is deductible. Dale, do you think this rule works all the time?

Say cheese :p ,

Lotana
 
Hi JD

1. Valuation can "last" as little or as long as the lender wants it to. We have done revals 4 weeks after purchase, and we have used 2 year old contracts for current pricing where a new val would not be favourable.

As always there are guidelines not tramlines. Leading onto our next q

2. Lenders dont like giving you a 500 k LOC limit and then you dont use it. Best to draw some of the funds so that the automatic review flags dont come out.

Be aware too that quite a few so called LOCs are cleverly marketed "fully drawn" advances with redraw facilities. While having a similr end effect, few of these loans have a true "Evergreen" loan term which is good feature with mist TRUE revolving LOCs.

"Locking" in high vals is a good idea, except nothing is locked with LOCs that have annual to three yearly reviews.


Ta

Rolf
 
John,
Something to bear in mind is if you claim the insurance as a deduction, then the payout (if you receive one in the future) is also taxable. If you don't claim the insurance as a deduction, then the payout will not be taxed. Just another point to consider.

Mark
'no hat, some cattle'
 
Hi Mark,

Thanks for pointing that out because I actually didn't know that. I guess one would opt not to claim the tax deduction if you thought (for whatever reason) there was a better than even chance you would one day end up claiming on your income protection insurance.

Cheers

John
 
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