Total and Permanent Disability (TPD) Insurance and Superannuation

Looking to fund your TPD cover through superannuation? Read this first.

TPD Cover & Super

  • Generally more affordable with reduced underwriting
  • You may already be covered through your employer's super with default cover
  • Cover may not be sufficient for the policyholder's individual needs.

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TPD insurance providers a lump sum benefit payment in the event that you have a disability that is deemed total and permanent, either as a result of an injury or illness.

Similar to life cover, total and permanent disability insurance can also be held inside superannuation. However, there are certain conditions you need to be aware of if you are considering funding your TPD cover through super. There are some key differences between holding cover inside and outside of superannuation to be aware of.

These conditions include:

  • Eligibility to contribute to your super. You will require either:
    • A benefit that accumulates over time
    • Contributions to be made on your behalf
    • Meet eligibility criteria to contribute to super
  • Tax treatment on TPD premiums and benefit payment
    • Full deduct-ability of premiums is generally only available for any occupation cover
  • Access to TPD benefit through super
    • Must meet the definitions prescribed by Super fund and meet the "disability super benefit" definition under tax law.

These are just some of areas where TPD insurance inside and outside superannuation are different. If you are considering taking out TPD Insurance, it is worth speaking with an insurance consultant to make sure you find adequate cover for your situation. A consultant can also help you review your current cover to see if it might be worth upgrading.

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Own Occupation TPD Insurance is no longer available through Superannuation. This came into effect July 1, 2014.

Eligibility to hold total and permanent disability insurance inside super

Life cover, income protection and TPD insurance are often held inside super because it is cost-effective to do so and they are usually set up by default depending on your employer’s nominated superfund.

Your TPD premiums can be paid from the amount available in your super, from either accumulated super balances or employer’s contributions. You can also make additional contributions by the way of salary sacrificing through your employer. These personal contributions may also be tax deductible, provided that you are eligible under the regulations laid out by the Australian Taxation Office (ATO).

To be eligible for total and permanent disability cover through super, you will need to satisfy the following conditions:

  • You are a member of complying super fund;
  • Have an accumulating super benefit;
  • Regular contributions are made by your employer; and/or
  • Are eligible to contribute to super; you have to be either under the age 65 or 65-75 and able to meet the work test.

When are my TPD payments tax-deductible?

Premiums paid for total and permanent disability cover insider super may be tax deductible, depending on certain circumstances. This is outlined in Draft Tax Ruling 2011/D6.

From 1 July 2011, the scope of which premiums paid for TPD cover inside superannuation are tax deductible to a complying super fund will depend on whether or not the benefit amount is paid to provide a ‘disability super benefit’.

A disability super benefit definition is met when you have satisfied the following conditions:

(1) You suffer from ill-health, either physical or mental;

(2) You are unable to be gainfully employed ever again in a capacity in which you are reasonably suited to by education, training or experience;

(3) You have been certified by two (2) medical practitioners to have both conditions of (1) and (2).

This means, TPD cover premiums are only fully tax deductible to the super fund when the policy definition is consistent with the disability super benefit definition. This tax treatment will also only apply to any TPD any occupation cover.

Tax Treatment for TPD Premiums Inside Super

Type of TPD Cover
TPD Any Occupation
Yes - 100%
TPD Any Occupation, with one or more of:
Daily living activities
Home duties
Cognitive loss
Loss of limb

Yes - 100%

Source: OnePath, 2014

Are benefit payments for cover funded via superannuation tax-deductible?

The benefit payment for TPD cover held outside super is generally tax free; however, this is not the case for cover within superannuation. A part of TPD benefit paid is tax free; however, a portion of the benefit is taxed depending on the method of payment you have chosen.

Disability superannuation benefit may be paid in the form of lump sum or monthly instalments (as an income stream), or a combination of both.

How to calculate the tax-free portion

The tax free-portion of a disability super benefit amount is only applicable to lump sum payment and is calculated with the following formula:

Additional tax-free = total benefit amount x [days to retirement / (service days + days to retirement)] 

  • Days to retirement: is the number of days from the day of which you have stopped being able to work to your last retirement date.
  • Last retirement date: is the day you reach 65 years of age, or you have reached a particular age in which your employment would have been terminated accordingly.
  • Service days: number of days in the service period for the lump sum.

Tax Rates for Lump Sum and Monthly Instalments TPD Benefit

The tax rates applicable to TPD benefit payment are as the following:

Your AgeLump SumIncome Stream
> 60 years oldTotal benefit amount - tax freeTax free
Preservation age* < 60 years oldTaxed component

  • The first $175,000 - tax free, plus Medicare levy
  • The remaining balance - 15%, plus Medicare levy
Taxed component is considered as assessable income and taxed at marginal tax rates, minus a 15% tax offset.Tax free portion is treated as non-assessable non-exempt income, and thus tax free.
Under the preservation ageTaxed component - 20%, plus Medicare levyTax-free component is tax free, while the remaining is treated as assessable income and taxable at marginal tax rate, minus the 15% tax offset.

*To find out what your preservation age is, refer to ATO’s Key Superannuation Rates and Thresholds.

Source: ATO, 2013; Quinn, 2013; Raffo, 2013

Claiming TPD benefit inside super

When you own your total and permanent disability insurance within super, the benefit amount from a claim is paid to the trustee of the super fund.

This means, upon a successful claim, the proceeds are only accessible if you can meet the following conditions of release of your super:

  1. You have met the total and permanent disability definition as outlined in your policy, for a claim to be made;
  2. You have met the permanent incapacity definition or other conditions of release under a superannuation law;
  3. You have met the disability super benefit definition as outlined in the tax law.

Remember that in order for you to meet the definition of a total and permanent disablement under an insurance contract or permanent incapacity under super law, you must satisfy the condition that you are unlikely to have a gainful working capacity in an employment that are qualified for by education, experience or training.

Source: Raffo, 2013

DISCLAIMER: This article contains general advice and does not consider your own personal circumstances. It is not tax advice and the general nature of this material may not be applicable to you. You should obtain professional advice and verify our interpretation before relying on the information contained in our article.

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William Eve

Will is a personal finance writer for specialising in content on insurance. While he cannot give personal advice to clients, Will enjoys explaining the intricacies of different types of protective cover to help individuals and businesses find affordable cover that won't leave them underinsured.

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4 Responses to Total and Permanent Disability (TPD) Insurance and Superannuation

  1. Default Gravatar
    Daphne | November 16, 2016

    When will I get payout and how much do I need to get things?

    • Staff
      Richard | November 16, 2016

      Hi Daphne,

      Thanks for getting in touch. You should contact your fund to find out what benefits you’ll be entitled to as benefit payments vary from fund to fund.

      All the best,

  2. Default Gravatar
    jbldigger45 | October 20, 2016

    Can u claim on old policies or funds now closed due to financial hardship and being misinformed by administrators at time of disablementfinally got 1 claim through in 2011 after being told was,nt eligable in 2004 retried in 2009/2010 had few funds open with different jobs

    • Staff
      Maurice | October 20, 2016

      Hi jbldigger45,

      Thanks for your question. Life insurance cover is generally cancellable if regular payments are not made for a period of time. As life insurance through super is paid with super contributions, closing a super account will also mean payments are no longer made to life insurance (and hence life insurance is cancelled).

      However, it’s also a good idea to get in touch your super funds to get a clearer answer for your specific situation.

      I hope this helps,


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