Do I need to pay tax on Insurance Payouts?

Some types of Insurance Policy Benefits (or ‘Insurance Payouts’) are tax-free, and other types count as taxable income.

If you complete a Self-Assessment Tax Return and you have received an Insurance Payout it is important that you know whether this income is taxable.

In general, policy benefits are only tax-free if they are paid during a time of sickness or unemployment. Many types of insurance policies offer tax-free payouts. These may include personal health, accident, sickness or income protection insurance plans. Other types of creditor insurance policies, including mortgage payment protection, may also be tax-free.

However, if your insurance policy offers tax-free premium payments (such as certain pension schemes), then any insurance policy benefits received through that scheme count as taxable income. Also, if you have transferred money between insurance schemes then any policy benefits received may also be taxable.

These conditions apply whether you have a private insurance policy, or a company insurance policy administered by your employer.

Some types of insurance policy may offer a variety of taxable and tax-free payouts, for example a general insurance policy may also provide tax-free sickness benefits. In many cases insurance benefit payments received before April 1996 were not tax-free, so you cannot claim a refund if you have paid tax on these.

Tax-free insurance policy benefits may be received as a single lump-sum, or as a series of payments. There is no upper limit on the amount of tax-free insurance benefits you can receive.