If you're confused by tax and TPD insurance, we're here to help. This guide will explain when your TPD premiums are tax-deductible and when your payouts are tax-free, so you can make a more informed decision about the cover that's right for you.
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.
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 super | Inside 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.
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 occupation | 100% |
Any occupation with any of the following inclusions:
| 100% |
| Own occupation | 67% |
Own occupation with any of the following inclusions:
| 67% |
| Own occupation bundled with death (life) cover | 80% |
Own occupation bundled with death (life) cover and any of the following inclusions:
| 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.
| Response | 65-74 yrs | 55-64 yrs | 45-54 yrs | 35-44 yrs | 25-34 yrs | 18-24 yrs |
|---|---|---|---|---|---|---|
| Peace of mind | 2.29% | 1.74% | 4.66% | 5.58% | 5.05% | 1.03% |
| I have a mortgage | 2.91% | 3.11% | 3.55% | 1.38% | 1.03% | |
| I have financial dependents | 2.33% | 1.55% | 4.06% | 1.38% | ||
| Other | 0.58% | 1.55% | 2.03% | |||
| I'm self-employed | 0.51% | 0.92% | ||||
| I'm worried about being made redundant | 1.03% |
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.
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.
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 money | What happens |
|---|---|
| Withdraw a lump sum before your preservation age | Must 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 60 | Must pay superannuation lump sum withdrawal tax on the taxable component at a rate of 15% plus Medicare levy. |
| Start an income stream | The 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 60 | If you wait until you're 60 to withdraw money from your super, it is tax-free. |
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Find out if TPD insurance in super is right for you.
Find out your disability cover options here with our detailed overview and comparison.
TPD cover payouts vary a lot, from can range from $50,000 up to to $5 million. So how much TPD is right for you? Let's figure it out.
If you need to make a claim on your TPD insurance, follow these steps to ensure you have the best chance of making a successful claim.
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