Total and permanent disablement (TPD) insurance can provide you with a one-off, lump sum payment if you become permanently disabled and are unable to work again.
Some people may have it included in their super already. Here's why TPD in super might not be the best option for this important type of cover.
TPD insurance inside super is designed to pay out a benefit into your super in the event you become permanently disabled and can no longer work and earn a living.
TPD insurance in super is sometimes automatically included when you open a super account, unless you're under 25. It's referred to as "default cover".
If your super account balance is below $6,000 and you don't make regular payments into it, your super fund is now legally required to cancel this insurance.
TPD inside super typically has more restrictive benefits than a policy outside of super. Here are some key differences:
As a rule, I'd only recommend Own occupation TPD – most of our clients have highly skilled roles where a minor disablement could still leave them able bodied and capable of working, but not at their previous role or level of income. This would be devastating if you were relying on a higher income but, due to an injury or sickness, you weren't able to claim because you're not quite sick or injured enough.
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Here's why TPD insurance inside super might be a good idea for you:
There are also a few reasons you might not want to get TPD inside super:
Trauma insurance, which pays out if you're diagnosed with a serious medical condition, is sometimes seen as a complimentary cover to TPD – however it is not available inside of super. This could negate the benefit of having insurance that's easier to manage. For example, if you had to purchase a standalone policy to have your needs met.
When your TPD is inside super it can only be classified as "any occupation". This means if you become disabled you must show you won't be able to return to work in any capacity, in any industry. It essentially means you aren't able to work at all, even in a field outside of your normal career.
If you have TPD outside of super, you will have the option to select an "own occupation" TPD policy. This means you only need to show you can't return to work in your chosen profession. It is a more expensive form of cover as you will only have to prove you can't work in that one profession. It also means you can return to working in some capacity at a later date in another field.
Your premiums are usually tax deductible when held inside super. With TPD insurance cover though, premiums are subject to different deductions depending on how the TPD insurance definition meets the "disability superannuation benefit" definition set out by the government's Tax Act. However, unless you hold "own occupation" TPD insurance, you should find it is 100% deductible because "any occupation" meets this disability definition.
For anyone who held an "own occupation" TPD policy inside super before July 2014, your premiums are 67% deductible. If your "own occupation" TPD cover is linked to a life insurance policy, premiums are generally 80% tax deductible. For more information on TPD tax, head here.
If you make a successful claim on your TPD inside super, the benefit is usually paid directly into your super fund.
Once the benefit is paid out, you will have the option to withdraw the benefit partially or in full. However, your payout may be subjected to a number of taxes if you do this. You can also choose to leave the full amount inside your super account which means you may be eligible for certain tax offsets.
If you've decided TPD insurance inside super is enough for you, you want more comprehensive cover with a traditional TPD policy or will add it on to your life insurance, it's worth protecting your financial future from accidents or illnesses that could jeopardise everything you've been working towards.
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