Over the years, individuals have been able to insure their income against loss brought about by sickness and/or accident.  In most cases, a benefit is payable up to age 65 with a specific waiting period with a maximum coverage up to 75% of gross income.

Premiums payable are tax deductible irrespective of the premium payable and in the event of a claim, the monthly benefit payable for the disability period is tax assessable income to the taxpayer.

It has always been possible for the insured to negotiate with the insurer to receive a lump sum in lieu of a monthly benefit, however, the lump sum benefit has been tax assessable.

A major insurance company has negotiated with the ATO for a lump sum to be paid to the insured where the insured is deemed to be totally and permanently disabled,  TAX FREE.  The offset is that, instead of a 100% tax deduction for the premium, 90% of that premium is the applicable amount.  This loss of the 10% tax deduction can be immaterial compared to the tax - free status of a lump sum payment.

A lump sum payment, in many instances, could be very valuable as it can be utilised in full for any purpose.

A recent published case involved a lump sum payment where a lump sum payment of $1.7m to a motor vehicle accident victim was received tax - free, as an alternative to a taxable regularly monthly benefit.