TPD insurance in super
It’s usually automatically included in your fund, but is TPD insurance in super worth it?
We’re reader-supported and may be paid when you visit links to partner sites. We don’t compare all products in the market, but we’re working on it!
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 find they have it included in their super already.
While TPD in super is a handy and inexpensive way to have insurance for injuries, it might not be the best option for this type of cover.
What is TPD insurance in super?
TPD insurance inside super is designed to pay out 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", meaning you don't decide whether you want it or not, and the premiums are deducted from your super. 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.
If you get TPD insurance in super, you'll find it is only available as "any occupation". What this means is if you become permanently disabled, you are only eligible for the lump sum if you are unable to work again in any occupation suited to your experience, education or training. For example, if you are a surgeon and you become permanently disabled and can't perform your duties anymore, you may still have to return to work as a GP.
How is TPD insurance in super different to outside super?
TPD inside super is generally more restrictive than a policy outside of super. This is because it must comply with Australian laws that govern superannuation.
A key difference of TPD inside super is the payout is treated differently from a normal insurance payout. Because TPD in super is paid for by the super account, if a claim is made, that payout will go directly into your super balance. You may have trouble accessing your payout if you are below retirement age or do not have a valid reason to withdraw it. It will also be subjected to the same taxes as any other super withdrawal.
Compare TPD insurance options outside super
What are the advantages of TPD insurance inside super?
Here's why TPD insurance inside super might be a good idea for you:
- Insurance inside super is generally cheaper and means you can get cover that would ordinarily be unaffordable.
- There is no medical underwriting when you or your employer sign ups to cover.
- The premiums don't interfere with your bank balance, just your super.
What are the disadvantages of TPD inside super?
There are also a few reasons you might not want to get TPD inside super:
- The premiums eat into your super balance.
- The default cover amount may not be enough to cover all your bills and ongoing expenses.
- "Any occupation" means you have to show you won't be able to work again in any capacity.
- It usually ends when you turn 65 or 70 so may not even last until when you need it, unlike a policy outside of super, which usually ends when you're 99 or stays for as long as you keep paying.
- If you change super funds, your cover may end.
- The payout is paid to your super fund, rather than directly to you.
Own and any occupation TPD in super
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.
How is TPD taxed in super?
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.
How do I claim my TPD super?
You'll generally follow these steps to make a TPD super claim:
- Contact your super fund. Tell it you intend to make a claim and ask what evidence you'll need to provide. You'll need to have your super details and information about you to prove your identity.
- Get the information and submit your claim. You'll need to provide medical evidence that you're permanently disabled and unable to work in any occupation ever again, employer information and other relevant statements. You can then fill out the forms sent to you and submit your claim.
- Your claim is assessed. The insurer will then decide whether you're eligible for a claim. In some cases, it may ask for more information, a second opinion or further medical exams. Your claim should be paid to your nominated bank account so long as you make a binding nomination. Otherwise, it may go to your employer, though your employer should be able to send it to you.
How are TPD benefits paid out in super?
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.
Frequently asked questions
Does TPD impact Centrelink payments?
Is TPD automatically added to all super accounts?
Can you claim more than one TPD insurance?
More guides on Finder
$1 million life insurance policies
Looking for $1 million life insurance? Compare policies here.
What is life insurance?
Not sure what life insurance is? We take you through the basics of life insurance with our easy to understand guide.
Own occupation vs Any occupation
Any occupation cover and own occupation cover are two types of cover that apply to Total and Permanent Disability Insurance (TPD) and Income Protection Insurance
When does your owner occupier loan become an investment loan?
Do you have to tell your lender if you rent out a room and turn your mortgage into an investment loan?
Owner-occupier home loans
Need an owner-occupier home loan? Compare rates, understand home owner tax rules and more.
Where to order Noodle Box delivery online
Looking for special offers on food delivery? Here’s where you can find deals on Noodle Box meals.
Apple iPhone 12 mini review
Apple’s iPhone 12 mini lives up to its name, delivering plenty of power in a truly pocket-sized phone. Predictably, the price you pay is in battery life.
How to start a beautician business
From qualifications to getting the right insurance in place, here’s our guide to starting your beautician business.
Find the right vehicle for your circumstances with Georgie. Georgie is an Aussie car buying service dedicated to finding the best car for you, at a great price.
How to start an accounting business
Find out what you need to know before starting an accounting business.
Ask an Expert