Total and Permanent Disability (TPD) Insurance and Superannuation

Looking to fund your TPD cover through superannuation? Compare cover and apply.

Quick facts

  • Your super fund may already be covering you by default
  • 'Own Occupation' TPD Insurance is not available through Superannuation.
  • There are different tax implications for TPD cover inside and outside of super

Total and permanent disablement (TPD) insurance provides a lump sum benefit payment in the event of total and permanent disability, as defined by an inability to work either your “own occupation”, or “any occupation” depending on the policy.

Is TPD worth getting inside a superfund?

There are benefits and drawbacks.

Life cover, income protection and TPD insurance are often held inside super because it is cost-effective to do so and they are often set up by default with an employer’s nominated superfund. It's usually cheaper this way. There are also additional tax benefits that come along with a super TPD policy.

On the flip side, getting a claim proven could be harder than a TPD policy outside of super because you'll need to be considered disabled in an 'any occupation' definition.

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Coverage is the amount of money that you will be paid in the event of a claim. An insurance consultant can help you determine an appropriate amount. Calculator
Provides a lump sum payment if you become totally and permanently disabled and are unable to return to work.
Provides a lump sum payment if you suffer a serious medical condition. Cover can be taken out for 40-60 medical conditions depending on the policy you choose.
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What does Total and Permanent Disability (TPD) insurance through super cover?

A TPD policy that is included inside of your super will provide you with a lump sum payment you if you:

  1. Become disabled
  2. And can no longer work in any type occupation that's reasonably suited to your previous work, training or experience.

Super cover vs a policy outside super

ComparisonTPD with superTPD outside super
What's covered?If you are disabled and can no longer work in any type of occupation that's reasonably suited to your:
  1. Previous work
  2. Training
  3. Experience
Same as a super policy unless you choose an 'Own Occupation policy'. If you choose an own occupation policy you are covered:
  • If you are disabled and can no longer work in your own occupation
Definitions covered'Any Occupation''Any Occupation' or 'Own Occupation' - Chosen when you apply.
Are premiums tax deductible?
  • No
Will I need to pay tax if I receive a payout
  • No

Speak to an adviser for clarity over what is and isn't covered.

Case study 1: Cover usually decreases as you get older

Policies that are included with your super are by default “unit-based” cover. What this means is that you are given “units” of cover based on your age. As you get older, the amount of cover you have decreases.

We spoke to Julia, a former ambulance officer (57, Queensland) who made a claim in 2016 for fibromyalgia, a condition resulting in widespread muscle pain and tenderness. This claim came after suffering PTSD in the two years prior. She made the claim under the assumption that she would receive $450,000.

After undergoing an 18-month claims process with her superannuation fund, she was notified that she would receive $300,000 in disability cover. This was $100,000 less than the amount Julia believed she would be entitled to when she “ticked the box” for insurance with her super.

“They told me I could only receive $240,000 because of my age, which is almost half of what was promised… then they said they would backdate the payment to 2015 so I would receive 300,000.”

After speaking to a representative from the superfund, we can confirm that the policy does reduce cover as you get older, but will backdate the amount covered to the date of the claim.

“Make sure you check if your cover diminishes as you get older. Age reduces cover and it’s something I wish I had known sooner.”

What’s the key takeaway

  • Find out if you have unit-based cover. That way you won’t be surprised if you find that your cover decreases with your age. You may also be able to change your cover to a “fixed” arrangement that doesn’t decrease with age.
  • Make sure you review your life insurance regularly. If Julia was aware of the way her cover would diminish over time, she could have adjusted the amount she was covered for before it was too late.
  • It’s not all bad. You will be backdated to the moment where you are actually diagnosed. If you’re unsure, check with your superfund.

A tip from Julia

When making a claim: “Be aware of the independent medical assessments, especially those provided by the insurance company. Demand taking in a support person who can witness and verify what he or she said.”

Case study 2: How offsetting can impact your TPD cover

It's really important that when getting TPD inside super, you watch out for any disclaimers that could offset or reduce your claim. Two former Qantas pilots recently lost close to $1 million each as a result of this after illness forced them to stop working.

Both Anthony Byrnes and Campbell Gribble are from Sydney and were members of Qantas Super. Their policies included total and permanent disability insurance as well as a separate income protection insurance policy that would cover them up to their 60th birthday.

Rather than provide them with greater financial security, the two insurance policies they each held were the reason they suffered such a huge financial loss.

That's because your income protection benefits can be reduced if you receive other benefits or income during the same time that your insured benefits are paid.

The two pilots say they were unaware that their claim to total and permanent disability would be offset by any income protection amount. As a result, when they applied for the lump sum benefit, it had gone from around $1 million to nothing.

While TPD and income protection insurance offer slightly different benefits (TPD provides a lump sum benefit payment in the event of total and permanent disability and income protection gives you a portion of your wage if you are sick or have an accident and can't work) having more than one policy can, in certain circumstances, lead to offsetting.

It's important then that when taking out an income protection policy, you make sure it will not offset or reduce your superannuation TPD cover. Speaking to an advisor is an effective way of avoiding certain clauses that might render your TPD cover worthless.

Am I eligible?

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.

Is TPD included in my 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).

What types of TPD can I get inside super?

As of 2014:

  • You cannot take out an “own occupation” TPD policy through superannuation.
  • You can only get “any occupation” TPD insurance.

Any Occupation vs Own Occupation

  • Any occupation: This type of policy will only pay out if you are permanently disabled, as defined by an inability to work “any occupation” to which you are suited by education, training or experience.
  • Own occupation: This cover will pay out if you are unable to work your “own occupation” anymore.

Why is this the case?

There are a wider range of situations where an “own occupation” policy will pay out. This conflicts with the purpose of TPD that's provided through super, which aims to pay out when someone is 'permanently incapacitated' (which is more close to an 'any occupation' definition).

When will a super TPD policy payout?

You will need to meet the 'permanently incapacitation' definition. This is how superfund's define a disability.

Definition of disability for superannuation funds

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).

Loss of a limb

For example, a cosmetic surgeon who loses a hand might no longer be able to work their “own occupation”, but might still work in a related field as a teacher, albeit at significantly reduced income.

Will a super TPD pay in this case?

  • With an inside-super “any occupation” TPD policy they would not be able to access this cover, and might not be able to receive any TPD benefits.

Consider 'own occupation' outside of super for wider protection

As such, the importance of “own occupation” TPD insurance, and therefore the suitability of TPD insurance through superannuation, is largely dependent on your occupation, skills and income.

  • Occupation: If your occupation requires special physical skills such as manual dexterity for a surgeon, it may be more worth looking into cover outside of super.
  • Skills: Any occupation cover pays out when you are unable to perform a job that you are suited to by education, training or experience. If you have the skills to perform a different job, even if it pays a lot less, you may not qualify for a claim.
  • Income: If you or your family is dependent on consistently high income it may be more worth looking into “own occupation” cover outside of super, as the payout may help serve as an additional buffer in the event of reduced earnings.

How is TPD insurance taxed inside super?

Generally, when your premiums are tax deductible then benefits paid will also be taxable. When your premiums are not tax deductible, benefits won't be taxed either.

Super vs outside super

  • When held outside of super, your TPD insurance premiums are usually not tax deductible.
  • When held inside super, premiums paid on any occupation TPD policies with your pre-tax earnings are tax deductible up to maximum allowed by the superannuation concessional contributions cap1. Your super fund can essentially claim a tax-deduction, which is passed onto you.

What are superannuation contribution caps?

Tax-deductions are available when you pay for premiums with your pre-tax income e.g. salary sacrifice from your employer. There is however, a cap on how much of these types of payments you can make towards your super (this includes any contributions that aren't going towards your life insurance premium, but just your superfund).

Super contribution cap changes

Superannuation contribution caps after 1 July 2017

The limit for the 2017-2018 financial year will be $25,000 for everyone. Any contributions over this amount will be taxed at the marginal rate, plus an additional “excess concessional contributions” charge.

What this means is that if your superannuation insurance premiums push your total superannuation contributions for the year above $25,000, you’ll probably be paying tax that you wouldn’t be paying if you had insurance outside of superannuation.

Superannuation contribution caps before 1 July 2017

Until 30 June 2017, for the 2016-2017 financial year, the cap depends on your age.

  • Under 49: $30,000
  • 49 or older: $35,000

Any contributions over this amount will be taxed at the marginal rate, plus an “excess concessional contributions” charge.

Generally, $100,000 is the initial limit of tax-free superannuation TPD insurance payouts as of 1 July 2017.

What about “own occupation” TPD super policies purchased prior to 2014?

These policies can continue unchanged, although are no longer sold in Australia. The tax deductibility of premiums generally ranges from 67% for standalone TPD policies, to 80% for TPD policies that are bundled with life cover.

Your benefit payment is split into two components:

  1. Tax-free portion. There is a portion of your benefit which is not subject to tax.
  2. Taxed portion. The remainder of your benefit will be taxed at regular withdrawal rates.

1. How is the tax-free portion calculated?

This depend on the time remaining between when the insured is disabled and when they plan to retire (usually at the age of 65). This is calculated with the following formula:

Tax-free component


(Total benefit amount) x (days to retirement)

Divided by

(Service days + days to retirement)


  • Total benefit amount: The dollar value of the TPD lump sum payout
  • Days to retirement: How many days until you reach age 65, or would otherwise have retired on a set date.
  • Service days: Generally the number of days since you joined the super fund up to when you are disabled.
  • Note: The tax-free portion is up to a maximum of $100,000 as of 1 July 2017.

2. How much is payable on the taxable portion?

This is dependent on:

  • Your age
  • How the benefits were paid for originally e.g. some of your payments may come from your employer that hasn't been taxed while some may come from a personal contribution that's already been taed.

Tax rates for 2016/2017 for the taxable portion

Source of payment
How were the benefits paid for originally?A taxed sourceAn un-taxed source
Example:Personal contribution from income that's already been taxed.Salary sacrifice or a contribution from your employer that has not been taxed yet.
Age Tax rates
60 and over0%15%
Preservation age but under age 600% (benefit must be under $195,000)15% (benefit must be under $195,000)
15% (if the benefit is over $195,000)30% (if the benefit is over $195,000)
Under preservation age20%

Not including the Medicare Levy. Information is accurate for the 2016/17 financial year. Source: Miller Super Solutions.

Learn more about TPD tax rules

How do I make a claim TPD?

For a TPD claim through superannuation, you will need to meet both the terms of your policy and superannuation conditions of release. In addition to your policy terms, your super fund must ascertain that:

  • You are suffering from ill-health, whether physical or mental
  • Two legally qualified medical practitioners have certified that, due to ill health, it is unlikely that you can ever again work in a job you are reasonably qualified for

When the conditions are met, the benefit amount from is paid from the insurer to the trustee of the super fund, who will then pass it on to you.

With TPD policies outside of superannuation, you simply need to meet the conditions of your insurance policy and liaise with the insurer to get benefits paid directly to you.

Should I get TPD insurance inside super, or outside?

The right option for you depends on your needs, both financially and in terms of cover. Generally, if you can find effective cover through superannuation, it might not be worth paying more for cover outside. Conversely, if you need some of the benefits that can only be found outside of superannuation e.g. Own Occupation cover, it may be well worth the extra cost.

A few conditions to understand:

  • The additional cost of the TPD insurance outside of super may be significantly offset by tax differences for some people.
  • The benefits of “own occupation” cover mean policies outside of super might be a far preferable option for some people.
  • Benefit taxability for TPD insurance held inside super can be unpredictable, and will depend on when the disability occurs, while TPD benefits paid outside of super will generally not be at all taxable, and will be more predictable.

An insurance broker or financial advisor may be able to help walk you through the factors specific to your situation, what it means for you and some of the things that need to be considered before you take out a policy.

Source: Raffo, 2013

Enquire with an adviser

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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10 Responses

  1. Default Gravatar
    craigFebruary 18, 2019

    I’ve lost my left arm at the shoulder will my super pay my TPD in this case? I work in manufacturing. My balance is also compromised.

    • Avatarfinder Customer Care
      JoshuaFebruary 20, 2019Staff

      Hi Craig,

      Thanks for getting in touch with Finder. I’m sorry to hear about what happened to you.

      Regarding your question, yes, it is possible for your super to pay for your TPD. It can be paid from the amount available in your super, from either employer’s contributions or accumulated super balances.

      I would suggest that you speak to your provider to know exactly how to achieve this.

      I hope this helps. Should you have further questions, please don’t hesitate to reach us out again.

      Have a wonderful day!


  2. Default Gravatar
    ArchieJuly 23, 2018

    Nearly 65 but have needed to retire earlier due to onset of dementia…will I be able to access my super tpd & if so will it only pay % due to age?

    • Avatarfinder Customer Care
      NikkiJuly 25, 2018Staff

      Hi Archie,

      Thanks for leaving a comment on our page.

      Yes, you are able to access your super if you fall under the following categories.

      – Become disabled
      – And can no longer work in any type occupation that’s reasonably suited to your previous work, training or experience.

      They will be able to pay you in a lump sum amount.

      A Super TPD policies that are included with your super are by default “unit-based” cover. What this means is that you are given “units” of cover based on your age. As you get older, the amount of cover you have decreases.

      Find out if you have unit-based cover. That way you won’t be surprised if you find that your cover decreases with your age. You may also be able to change your cover to a “fixed” arrangement that doesn’t decrease with age. It also pays to review your life insurance regularly, if any.

      Hope this clarifies!


  3. Default Gravatar
    AndrewJuly 30, 2017

    I’m a retired public servant receiving a CPI indexed defined benefit pension with no intention of taking up future employment. I have another industry superfund account still in the accumulation phase. It contains both death and TPD insurance which I pay for within that fund. Is there any reason to continue paying for the TPD component as even if I became disabled the defined benefit pension would continued to be paid to me. Am I paying for something that I don’t really need and probably couldn’t claim on?

    • Default Gravatar
      JonathanAugust 4, 2017

      Hello Andrew,

      Thank you for your inquiry.

      Generally, TPD insurance is recommended if you are engaged in an occupation, to help you with income replacement should you become totally and permanently disabled. Usually insurance covers define this with at least 6 months of continuous disability plus you’re inability to go to work.

      With that said, you may consider to take it off from your super, factoring the benefits and cost-effectiveness. But take note there may be implications such as tax.

      You can talk to a qualified insurance broker or financial adviser who will weigh all your personal circumstances for a professional recommendation.

      Hope this helps.


  4. Default Gravatar
    DaphneNovember 16, 2016

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

    • Avatarfinder Customer Care
      RichardNovember 16, 2016Staff

      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,

  5. Default Gravatar
    jbldigger45October 20, 2016

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

    • Avatarfinder Customer Care
      MauriceOctober 20, 2016Staff

      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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