Most people have Total and Permanent Disablement (TPD) Insurance within their super by default. Whereas others apply for a Total and Permanent Disablement policy through a retail insurer outside of their superannuation fund.
There are pros and cons for both for those of these alternatives, and our Certified Financial Planner® Glenn Hilber discusses some of these advantages and disadvantages in the video and blog below.
DISCLAIMER – The information provided in this blog is general and does not consider your individual financial needs or objectives. It does not constitute personal advice. We recommend seeking out professional and independent financial, legal and tax advice which has been designed for your individual situation before acting on any information contained below.
Pros of TPD Insurance in Super
- Premiums tax deductible to super fund
When you have TPD insurance inside superannuation, the premiums are tax deductible to the superannuation fund. And while you don’t see that tax benefit directly, it does mean that a like for like policy ends up being 15% cheaper after that tax deduction. TPD insurance is generally not tax deductible when you pay for it outside your superannuation.
- Premium doesn’t impact your Cash flow
When you have TPD insurance inside superannuation, the premium isn’t being debited from your cash flow – which means your day-to-day spending isn’t impacted.
This advantage can be particularly beneficial for those in their 20s and 30s who require TPD insurance as they have a young family and a mortgage, but their available liquid (or cash) funds are limited.
Cons of TPD Insurance in Super
- Tax on withdrawal if you made a claim
If you’ve got your TPD policy inside superannuation and you do make a claim, those TPD proceeds are paid to your superannuation and there is tax payable on withdrawing the money from superannuation.
There are ways to minimise the tax though, and potentially get away with not paying any tax at all. Click here to find out more about Tax on TPD Payouts.
On the other hand, if you’ve got a TPD policy just owned by you and you pay the premiums directly to the insurer, then if you made a claim, the TPD proceeds, generally speaking, are paid to you without any tax implications.
- Definition of TPD Policy
The other con on TPD inside superannuation is around the definition of the TPD policy.
So, broadly speaking, there are two different types of TPD policies you can have.
- One is an “any occupation”. And that means, to get a claim, you need to be totally and permanently disabled to the extent that you can’t work in any occupation.
- The other is the “own occupation”. And that means that you need to be totally and permanently disabled to the extent that you can’t work your own occupation.
A carpenter who always needs to lift and carry etc for his own occupation receives a permanent shoulder injury that prevents him from carrying out his own occupation. He may be eligible for TPD payment with an “own occupation” definition.
But if this carpenter can get another job – for example, work at Bunnings or as a rideshare driver – and they’ve got an “any occupation” definition in their TPD policy, they potentially won’t be paid the claim.
Got questions about TPD Insurance in Super?
In summary, TPD Insurance inside superannuation will be sufficient for many people, however, there are retail insurers who do offer better products and better definitions on the TPD policy. It’s important to do your own research and seek personalised advice from a professional.
If you have any specific questions about TPD Insurance in Super, or would like tailored financial advice, please contact a Precision Wealth Certified Financial Planner ® today by calling 1300 200 012.
Precision Wealth Management is a local, privately-owned financial planning firm based on Brisbane’s northside.
Our certified advisors work with each individual client to determine the best wealth creation strategy based on their unique situation.
We strive to stay at the forefront of the industry, and our investment approach is based on decades of research.
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