TPD insurance and tax

Your premiums may be tax-deductible if you bought TPD insurance through your super fund. That's not likely to be the case if you went direct with an insurer.

Life Insurance

Key takeaways

  • Temporary or Permanent Disability cover is typically held in your superannuation or as a stand-alone policy.
  • If it's in your super, your TPD premiums are likely tax-deductible.
  • Premiums for TPD held outside your superannuation are generally not tax deductible.
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Product AUFLI Maximum Cover Minimum Cover Maximum Entry Age Expiry Age Stand alone or Add on policy hide
No set limit
Not stated
74
99
Our verdict: One of Australia's leading life insurers. Automatically includes child critical illness cover. Plus, it comes with a level premium option (e.g. costs remain similar as you get older).

⭐ Current offer: Get up to 15% off your TAL Life, Trauma or TPD insurance policy for life - if you have a Body Mass Index (BMI) between 19 and 28 at the time of your application. Offer T&Cs on insurer website apply.
3,000,000
Not stated
62
65
Standalone or Policy add-on
Choose up to $3 million in coverage. If you’re building a policy with TAL, it’s good to know there are a range of perks included with your life insurance. Examples include a counselling benefit and premium suspension cover. Plus, the option to add coverage for your kids.
$1,500,000
$50,000
60
65
Policy add-on
Secure up to $1.5 million in TPD cover by choosing Medibank. This was more than 7 other providers (out of 14) we reviewed. Medibank health members can score 10% off their life insurance premiums.
$1,000,000
$50,000
55
65
Policy add-on
With ahm, you can add up to $1 million in TPD insurance to your policy. You can buy online and there’s no medical exam. Keep in mind that Medibank offers an extra $500k – worth considering if your needs are greater.
$1,000,000
$50,000
59
65
Policy add-on
Real Insurance offers up to $1 million in TPD cover. This is pretty competitive versus the market. You can also boost your cover by adding as much as $500k in critical illness insurance.
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Is TPD insurance taxed in Australia?

If you bought Total Permanent Disability (TPD) insurance through your super, then the premiums may be tax-deductible to your super fund. If you bought TPD insurance independently, through an insurer, the premiums are not tax-deductible.

Are TPD payouts taxed in Australia?

Generally, benefits are not taxed for policies bought independently outside of a super. However, if you bought your policy through super, some of your payout may be taxed.

Outside of superInside of super
Premiums❌ Not tax-deductible✅ Tax-deductible
Benefits✅ Not taxed⚠️ May be taxed

More than 70% of Aussies who have life cover hold it in their super, according to Moneysmart figures.

Finder survey: What is the main reason Australians of different ages took out TPD insurance?

Response65-74 yrs55-64 yrs45-54 yrs35-44 yrs25-34 yrs18-24 yrs
Peace of mind2.29%1.74%4.66%5.58%5.05%1.03%
I have a mortgage2.91%3.11%3.55%1.38%1.03%
I have financial dependents2.33%1.55%4.06%1.38%
Other0.58%1.55%2.03%
I'm self-employed0.51%0.92%
I'm worried about being made redundant1.03%
Source: Finder survey by Pure Profile of 1110 Australians, December 2023

Are TPD insurance premiums tax-deductible?

If you bought your TPD insurance independently – that means through an insurance company rather than a super fund – your premiums aren't tax-deductible.

However, if you have TPD insurance through your super, your fund may be eligible for a full or partial deduction. The amount your fund can deduct will depend on the type of cover you have.

Type of TPD How much of your premium a fund can deduct
Any occupation100%
Any occupation with any of the following inclusions:

  • Activities of daily living
  • Cognitive loss
  • Loss of limb
  • Domestic duties
100%
Own occupation67%
Own occupation with any of the following inclusions:

  • Activities of daily living
  • Cognitive loss
  • Loss of limb
  • Domestic duties
67%
Own occupation bundled with death (life) cover80%
Own occupation bundled with death (life) cover and any of the following inclusions:

  • Activities of daily living
  • Cognitive loss
  • Loss of limb
  • Domestic (home) duties
80%

It's important to note that the tax deduction is available to the trustee of your superannuation fund, not to you personally. You may still see some benefits, however, as your super fund will usually apply this deduction to your superannuation balance.

If you have a self managed super fund, the situation may be different and potentially more complex, so it's worth speaking with a tax accountant or financial adviser.

Are TPD benefits taxed?

Sometimes. It depends on how you paid for your TPD insurance to begin with and whether you want to withdraw the money early from your super account.

  • If you got TPD independently (outside of your super), the benefits generally aren't taxed. You'll get a lump sum if your claim is successful and it's yours to keep.
  • If you got TPD through your super, the TPD benefit will be paid into your super account. If you choose to withdraw money from your super account early – that's between 55 and 60 years old depending on your date of birth – the money you withdraw will be taxed.

The standard tax rate when withdrawing super before retirement age is 22%. However, when withdrawing superannuation following a TPD claim, a portion of your withdrawal will be tax-free. Your super fund will apply a calculation based on your days of service, so the effective tax rate will be different for everybody.

How much are TPD benefits taxed?

If you bought your TPD insurance through your super fund and you claim a benefit, the money may be subject to tax. The amount will depend on your age, how you want to claim the payment and how much you already had in your super account.

How you claim the moneyWhat happens
Withdraw a lump sum before your preservation ageMust pay superannuation lump sum withdrawal tax on the taxable component at a rate of 20% plus Medicare levy.
Withdraw a lump sum after your preservation age but under age 60Must pay superannuation lump sum withdrawal tax on the taxable component at a rate of 15% plus Medicare levy.
Start an income streamThe taxable component of the annual income drawn will be taxable at your marginal tax rate, but with a 15% tax offset.
Leave the balance in super until you're 60If you wait until you're 60 to withdraw money from your super, it is tax-free.

Speak to a broker for more information

We can only provide general advice, but issues like TPD and tax are very much individual issues. A life insurance and TPD broker can help you find cover that's tailored for your needs.

Frequently asked questions

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To make sure you get accurate and helpful information, this guide has been edited by Tim Bennett as part of our fact-checking process.
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Senior writer

Nicola Middlemiss is a contributing writer at Finder, with a special interest in personal finance and insurance. Formerly a business and finance journalist, Nicola has written thousands of articles helping Australians better understand insurance and grow their personal wealth. She has contributed to a wide range of publications, including Domain, the Educator, Financy, Fundraising and Philanthropy, Insurance Business, MoneyMag, Mortgage Professional, Yahoo Finance, Your Investment Property, and Wealth Professional. Nicola has a Tier 1 General Insurance (General Advice) certification and a Bachelor's degree from the University of Leeds. See full bio

Nicola's expertise
Nicola has written 240 Finder guides across topics including:
  • Personal finance
  • Personal insurance, including car, health, home, life, pet and travel insurance
  • Commercial business insurance

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12 Responses

    Default Gravatar
    JayFebruary 13, 2023

    Hi

    Checking calculations.

    If TPD is $529,988 Gross and the effective tax rate at 3.6%, what will be the tax-free component?

    And the taxable portion will be calculated at 22%. Is this correct?

      AvatarFinder
      SarahMarch 3, 2023Finder

      Hi Jay,

      Unfortunately we are not licenced to provided personalised advice. The tax treatment of your claim may depend on whether your policy is taken out in your own name or through your super fund. Your question sounds like it relates to IP through superannuation, where the standard tax rate when withdrawing super before retirement age is 22%.

      However, when withdrawing superannuation following a TPD claim, a portion of your withdrawal will be tax-free. Your super fund will apply a calculation based on your days of service, so the effective tax rate will be different for everybody.

      Your best bet is to check this calculation with your income protection insurance provider or the ATO.

      Hope this helps!

    Default Gravatar
    KuldeepAugust 7, 2017

    I received lump sum payment for my TPD claim from Super fund (1st super) and certain tax was withheld on part payment.
    Can I claim legal fee that I paid to get this lump sum payment as tax deduction?

      Default Gravatar
      ArnoldAugust 8, 2017

      Hi Kuldeep,

      Thanks for your inquiry.

      You may be able to claim some deductions which are not work-related. They are:

      1. Interest and dividend deductions for investments
      2. Deductions for gifts and donations
      3. Deduction for the cost of managing your tax affairs.

      Some legal fees may be used as deductions. For more information please visit ATO’s claiming deductions 2017 guide.

      Hope this information helped.

      Cheers,
      Arnold

    Default Gravatar
    tanyaAugust 7, 2017

    My partner who is 54 yrs old is receiving a payout of TPD can you tell us the tax rate it is for a fixed sum of $155000

      AvatarFinder
      JonathanAugust 7, 2017Finder

      Hi Tanya,

      Thanks for your inquiry.

      The taxability of the TPD payout will depend on whether it is held within the super policy.

      Please feel free to read more about TPD insurance tax and learn more how it works.

      Best regards,

      Jonathan

    Default Gravatar
    JulieFebruary 15, 2017

    Can I claim tax back on the tax I paid on my TPD payout

      AvatarFinder
      ZubairFebruary 15, 2017Finder

      Hi Julie,

      Thank you for your question.

      Generally, you will not be able to claim a tax back on the tax payout. However, you can claim tax deductions on TPD premiums.

      Cheers,
      Zubair

    Default Gravatar
    BrianJanuary 9, 2017

    I received 61000 from rest for a total and permanent disability the monies were paid into my super account with rest. I want to access this money so I can build a small house on my block of land. I am 58 years old. Do I have to pay tax, and if so, approx. at what rate/amount?

      AvatarFinder
      MauriceJanuary 10, 2017Finder

      Hi Brian,

      Thanks for your question. According to the Industry Super website, withdrawals from your super account before the age of 60 will generally be taxed.

      The rate you’ll be taxed will depend on your personal circumstances. In general, the taxable component of a lump sum that’s withdrawn is taxed at 20% plus the medicare levy.

      Note: There are other factors that may be taken into account e.g. if you have reached your preservation age, then you can usually receive a lump sum tax-free (up to a certain amount). Please feel free to read more about when super can be accessed.

      Good luck!

      Maurice

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