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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.
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.
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.
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:
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.
You'll generally follow these steps to make a TPD super claim:
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.
Looking for $1 million life insurance? Compare policies here.
Not sure what life insurance is? We take you through the basics of life insurance with our easy to understand guide.
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
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