By Panos Tsiolis, Insurance Consultant & Director of Ideal Insurance

The new tax reform, effective from the beginning of the year, introduces changes to insurance and other areas. This presents an ideal opportunity for financial and tax planning to maximize available insurance-related deductions.

This article outlines the key changes and explains how you can benefit from them.

The new tax reform strengthens the role of private insurance, with the state acknowledging its importance for financial resilience. The provisions maintain incentives for life insurance and pensions and introduce new deductions for income-loss protection and home insurance.

New Tax-Free Allowance and Revised Tax Rates

Before discussing insurance deductions, it is important to review the changes to the tax base. Many individuals will pay less tax, even without making any adjustments.

The tax-free allowance increases to €22,000 from €19,500. Individuals earning up to €22,000 annually will not pay income tax. For those earning exactly €22,000, this results in an annual net income increase of €500.

The reform also introduces new personal deductions based on family status, provided gross family income does not exceed certain limits. Specifically, the following deductions apply:

• €1,000 for the first dependent child
• €1,250 for the second dependent child
• €1,500 for the third and each additional dependent child

For single-parent families, these amounts are doubled. Additional deductions are available for rent or mortgage interest (up to €2,000), home energy upgrades and electric vehicles (up to €1,000), and home insurance against natural disasters (€500).

It is also important to note that the new personal deductions do not reduce the taxable income used to calculate the maximum 1/5 deduction for premiums, GESY contributions, and contributions to funds and schemes.

The new tax rates from 2026 are:

• 0% from €0 to €22,000
• 20% from €22,001 to €32,000
• 25% from €32,001 to €42,000
• 30% from €42,001 to €72,000
• 35% from €72,001 and above

In summary, most individuals will pay less tax. With the addition of insurance deductions discussed below, potential savings can increase further.

Life Insurance Remains the Central Player

Life insurance continues to be a primary source of tax deductions. For the first time, tax deductions are also available for premiums related to insurance covering permanent or temporary, total or partial disability, and benefits linked to income loss.

This achievement is the result of the efforts of the Pancyprian Association of Professional Insurance Intermediaries, which I have had the privilege of leading for the past two years. I am proud of this development.

This provision is significant for all working individuals, as the state now offers incentives to help them retain their ability to work. You can secure your income at a reduced cost through tax relief.

The deduction for this type of insurance policy, as with life insurance, is limited to 7% of the coverage amount payable by the insurance company in the event of disability.

Also, the total final tax deduction percentage cannot exceed 20% of taxable income.

Changes in the Taxation of Partial Surrenders

To encourage long-term life insurance policies and limit potential abuse of tax relief through early contract termination, the state has established the following rules for taxing partial surrenders of insurance policies:

• If 4 years have not elapsed from the date of the insurance policy and a partial surrender is made, 50% of the partial surrender amount is added to the taxable income of the year in which the partial surrender was made and taxed.
• Now in the case where 4 years have been completed from the date of the insurance policy and a partial surrender is subsequently made, then 50% of the surrender amount exceeding the gross surrender value as of December 31st of the fourth year preceding the year of partial surrender is added to the taxable income and taxed.

The gross surrender amount is reduced by the amount that the partial surrenders of the previous three years exceed the premiums paid during those three (3) years.

Tax Incentives for Home Insurance

A significant new addition is a tax deduction for home insurance against natural disasters. Premiums paid for this coverage are deductible from taxable income up to €500 annually.

This provision encourages citizens to insure their homes, contributing to greater societal resilience against the increasing risk of natural disasters.

This deduction applies not only to primary residences but also to holiday homes and rental properties.

The deduction is not limited to home insurance against natural disasters; it can also include coverage for other risks, such as theft.

Importantly, the deduction for home insurance against natural disasters reduces the net income on which the 1/5 limitation is calculated. It is not included in the deductions for premiums and contributions to funds and schemes, which are subject to the 1/5 net income limit.

The Opportunity You Shouldn’t Miss

The 2026 tax reform is more than a legislative change; it is an opportunity to reassess your financial strategy. For the first time, the state fully recognizes the value of private insurance and provides incentives for proactive planning.

Think about it: You can protect your family, your health, your home, and your ability to work, while also securing your retirement and saving significantly on taxes. The government is effectively rewarding responsible planning.

If the time has come to fully utilize all the new possibilities and create a comprehensive tax and insurance plan, contact us.

Because, as we always say: Secure your future, TODAY!