Tax Deductibility Of TPD Insurance Premiums – Picking The Best Approach
One of the factors you should consider when purchasing a TPD insurance policy is the tax deductibility of TPD insurance premiums.
There are certain cases in which TPD insurance premiums are tax deductible and others in which they aren’t. When the premiums for your policy are tax deductible, the overall value of your premium payments would be greater than if they were taxed.
There are various circumstances in which TPD premiums would be tax deductible.
Many people choose to take out their TPD insurance policy through their super because their premiums could be paid from accumulated balances in the super account or through employer contributions click here to learn more. This allows you to preserve your disposable income. You also have the option of making additional contributions into the super to fund your insurance premium through salary sacrificing. In such a case, you would forego a portion of your salary and your employer would direct the amount as a contribution to your TPD policy.
TPD insurance premiums are fully deductible to complying super funds only if the payments relate to the fund’s liability to provide the disability benefit. The disability super benefit definition is given as a benefit that is given if the insured suffers ill health and two qualified medical practitioners attest to his or her inability to ever be employed. Note that full deductibility only applies to any occupation covered in which the policy definition agrees with that for disability super benefit. Own occupation policies get a 67 percent tax deduction, but this could increase to 80 percent if the policy is bundled with a life cover.
When you buy a total and permanent disability insurance in superannuation policy, the premiums are often cheaper because the fund is able to buy a policy in bulk, making it possible to negotiate a lower rate. In addition, some basic covers may not require a medical check. However, you might get a better cover when you opt to buy a standalone policy, although the premiums would be considerably higher. In addition, there may be delays when claiming TPD insurance benefits through your super since the insurance benefits are first paid out to the fund and then to you, but only if you meet the disability definition under super law. If not you would have to meet some other release condition before the benefits are paid out.
You can also purchase a non-super policy through your employer. The policy is owned by your employer because the contract of insurance is between the insurer and your employer. A separate contract may exist between you and the employer requiring the employer to provide insurance as a condition of your employment. In such a case, the premiums would be tax deductible. When a claim is approved by the insurer, the proceeds would be paid to your employer who would in turn transfer them to you or your dependents. Read: Why Choose AIA For Income Protection Insurance?
If you buy a standalone policy from an insurance company, the premiums are generally not tax deductible. However, it is important to understand the pros and cons of taking out a TPD policy as a standalone policy, through superannuation or as a non-superannuation policy through your employer. Getting professional advice would probably be the best approach when determining the tax deductibility of TPD insurance premiums.