TPD Insurance Tax Deductible – What Are Your Options?

TPD Insurance Tax Deductible

TPD insurance provides financial protection for individuals who are responsible for providing for the needs of their loved ones.

If you were to become totally and permanently disabled, this may mean you may never work again or be able to earn a living.

With this insurance, you receive a lump sum payment to help you meet your financial needs and those of your family. There are several options for obtaining your insurance policy, each with its pros and cons. If you are like most people, possible tax deductions could be a good reason to go with a particular option.

Is TPD insurance tax deductible?

There are some situations in which the premiums for TPD insurance are tax deductible, but in other cases, this is not so. Insurance tax deduction means that when you make a premium payment, its value is ultimately greater and has a greater effect on your coverage than if it was taxed. You need to be familiar with the circumstances for which you would enjoy tax deductions for your premiums in order to make the most of your policy. In the case of policies purchased from a private insurance company, your  premiums would not be tax deductible. However, if the benefit payment is paid to the injured person, such benefits would be tax-free, click here to know more.

TPD via superannuation

Getting your insurance policy through superannuation is the best option if you are looking to make the most of your premiums through tax deductions. In addition to the tax deductions, your premiums are also paid from the accumulated balances in the fund. This means that you get to enjoy a greater portion of your disposable income. You can also increase your premiums by making contributions into the super through salary sacrificing. This would mean receiving a lower amount of your salary which your employer directs to your TPD policy through employer contributions.

TPD policy definitions

Superannuation law provides a definition for permanent incapacity. According to the super definition, a superannuation disability benefit is one that is provided as a result of the ill health of the insured, with confirmation from two medical practitioners that the insured is unlikely to ever engage in gainful employment. If the definition of total and permanent disability in your policy is aligned with the definition under super, your insurance premiums would be fully tax deductible. This is usually the case if you have an own occupation insurance policy.

In the case of an own occupation insurance policy, tax deductions on the premiums would only be applicable for the portion that complies with the incapacity definition provided by super law. The premium payments for own occupation policies get a 67 percent tax deduction. However, if this portion is not clear, you would need an actuary to determine what percentage is deductible, which would come at a cost. Read: What Is Life Insurance?

Asking the question “Is TPD insurance tax deductible?” is important before you decide how you will obtain your policy. However it is also important to seek expert advice as you weigh the pros and cons of each option before you pick the most appropriate for obtaining your insurance policy.