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What you need to know
TPD insurance in super can be a straightforward, low barrier to entry option.
It could work for those looking for an affordable policy with no medical checks.
These policies can fall short when you need them the most. Their weaker benefits can lead to underinsurance.
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.
What is TPD insurance in super?
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.
How is TPD insurance held in super different to outside super?
TPD inside super typically has more restrictive benefits than a policy outside of super. Here are some key differences:
The payout. An insurance payout outside of super gets paid directly to you, but cover inside super gets added to your super balance
Expiry age. TPD cover in super usually ends at age 65 whereas cover outside generally continues as long as you pay the premium
Default cover. Insurance in super usually means you're automatically accepted while acceptance outside of super could be tricky if you have pre-existing health conditions or a high-risk job
Stricter criteria. TPD in super is only available as "any occupation" (read more on this below). Essentially, it means you'll only be eligible for a benefit if you're unable to work again in any occupation suited to your experience, education or training versus your "own occupation" available outside of super.
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.
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 it may not even last until when you need it, unlike a policy outside of super, which may end when you're 99 (as long as you keep meeting your premium payments).
If you change super funds, your cover may end.
The payout is paid to your super fund, rather than directly to you.
You can't get trauma cover in 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.
More on what "Own occupation" and "Any occupation" mean
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 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.
Bottom line
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.
Why you can trust Finder's life insurance experts
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Frequently asked questions
Premiums are generally tax-deductible to your super fund. Whereas they aren't when paying for TPD insurance outside of your super, ie direct with an insurer. Keep in mind, if you bought your policy through super, some of your payout may be subject to tax.
Yes, it's perfectly acceptable to have multiple TPD policies. Many people take out a standalone policy to supplement their super one for added peace of mind.
A TPD claim should have no impact on your Centrelink payments or other benefits you're entitled to. If you're under the pension age, it should not impact your Centrelink payments.
Most super funds will automatically provide you with life and TPD insurance. In less common circumstances, you might automatically get income protection insurance inside super.
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.
Gary Ross Hunter is an editor at Finder, specialising in insurance. He’s been writing about life, travel, home, car, pet and health insurance for over 6 years and regularly appears as an insurance expert in publications including The Sydney Morning Herald, news.com.au, The Telegraph, Explore Travel and Escape. Gary holds a Kaplan Tier 1 General Insurance (General Advice) certification and a Kaplan Tier 1 Generic Knowledge certification which meets the requirements of ASIC Regulatory Guide 146 (RG146).
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