TPD insurance and tax

Is TPD insurance taxed in Australia?

If you bought Total Permanent Disability (TPD) insurance through your super, then the premiums may be tax-deductible to your super fund. If you bought TPD insurance independently, through an insurer, the premiums are not tax-deductible.

Are TPD payouts taxed in Australia?

Generally, benefits are not taxed for policies bought independently outside of a super. However, if you bought your policy through super, some of your payout may be taxed.

More than 70% of Aussies who have life cover hold it in their super, according to Moneysmart figures.

Finder survey: What is the main reason Australians of different ages took out TPD insurance?

Are TPD insurance premiums tax-deductible?

If you bought your TPD insurance independently – that means through an insurance company rather than a super fund – your premiums aren't tax-deductible.

However, if you have TPD insurance through your super, your fund may be eligible for a full or partial deduction. The amount your fund can deduct will depend on the type of cover you have.

It's important to note that the tax deduction is available to the trustee of your superannuation fund, not to you personally. You may still see some benefits, however, as your super fund will usually apply this deduction to your superannuation balance.

If you have a self managed super fund, the situation may be different and potentially more complex, so it's worth speaking with a tax accountant or financial adviser.

Are TPD benefits taxed?

Sometimes. It depends on how you paid for your TPD insurance to begin with and whether you want to withdraw the money early from your super account.

• If you got TPD independently (outside of your super), the benefits generally aren't taxed. You'll get a lump sum if your claim is successful and it's yours to keep.
• If you got TPD through your super, the TPD benefit will be paid into your super account. If you choose to withdraw money from your super account early – that's between 55 and 60 years old depending on your date of birth – the money you withdraw will be taxed.

The standard tax rate when withdrawing super before retirement age is 22%. However, when withdrawing superannuation following a TPD claim, a portion of your withdrawal will be tax-free. Your super fund will apply a calculation based on your days of service, so the effective tax rate will be different for everybody.

How much are TPD benefits taxed?

If you bought your TPD insurance through your super fund and you claim a benefit, the money may be subject to tax. The amount will depend on your age, how you want to claim the payment and how much you already had in your super account.

Speak to a broker for more information

We can only provide general advice, but issues like TPD and tax are very much individual issues. A life insurance and TPD broker can help you find cover that's tailored for your needs.

Frequently asked questions

• Is TPD an income?

  Unlike an income protection payment, a total and permanent disability insurance benefit is a lump sum payment and is not considered an income.

• Does a TPD payout affect income protection?

  It is common to have both TPD insurance and income protection and you can claim a TPD benefit while being paid income protection. Some insurers, however, may have a policy to end income protection payments once you're paid a TPD benefit so it's important to review your policy documents and consider your personal situation.

• What can I do with my TPD payout?

  Once your TPD claim is approved and paid out, the money is yours to do with as you wish. A TPD benefit can be used to help cover medical expenses, pay off existing debts and fund any ongoing living costs.

• Does a TPD payout affect Centrelink?

  The approval of a TPD payout should not immediately impact your Centrelink entitlement, especially if it's paid into your superannuation account. Once the benefit is withdrawn from your superannuation account, whether you're subject to Centrelink testing is dependent on a few factors, including if you've reached pension age and what you choose to do with the funds.

• How many times can you claim TPD?

  You can claim on more than one TPD policy as long as you meet each policy's criteria for total and permanent disablement.

To make sure you get accurate and helpful information, this guide has been edited by Tim Bennett as part of our fact-checking process.

Written by

Nicola Middlemiss

Journalist

Nicola Middlemiss is a journalist with nearly a decade of experience in personal finance and insurance. She has contributed to Domain, Yahoo Finance, Money Magazine and Insurance Business Australia, offering in-depth insights into commercial insurance in the Australian market. Nicola holds a Bachelor’s degree in English from the University of Leeds and a Tier 1 General Insurance (General Advice) certification, which complies with ASIC standards. See full bio

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Nicola has written 241 Finder guides across topics including:

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