TPD Insurance Tax Super – Tax Advantages In Superannuation

TPD Insurance Tax

One of the important considerations for purchasing total and permanent disability insurance is its affordability.

Generally, there are two main ways of obtaining your TPD insurance policy: through superannuation or directly from an insurance company.

TPD insurance via superannuation is usually more cost effective for several reasons, one being the tax advantages it provides.

However, it is important to fully understand the tax implications of getting TPD insurance through your super, learn more information here.

Tax deductions

The main tax advantage you enjoy in super is the fact that premium payments made through your employer are tax deductible. However, premiums are only tax deductible to the extent that the policy aligns with the super requirement for permanent incapacity. According to super law, total permanent disability benefits are provided if the insured is suffering from mental or physical illness, with two legally qualified medical professionals certifying the he or she is unlikely to ever engage in gainful employment.

As a rule of thumb, premiums for TPD insurance in super are fully tax deductible if your policy has the any occupation definition for total and permanent disability, learn more about TPD insurance tax super. This means that you are unable to work in any occupation that you are reasonably qualified for as a result of your illness or injury. If you have an own occupation TPD policy, your premiums would be 67 percent tax deductible. The same applies for other types of TPD insurance policies, but this percentage could increase to 80 if you bundle your policy with life insurance.

Tax on TPD benefits

When you make a successful TPD insurance claim, the benefits you receive are subject to tax. However, a tax-free portion may be applied for disability benefits paid to individuals under age 60 to reflect the amount of time that would have remained before the person’s normal retirement date. This means that the tax-free portion is generally larger for younger insurance holders who make TPD claims.

One of the perceived problems to holding TPD insurance through super is that the benefit is taxed, whereas it would be tax-free if the policy was held outside super. However, you can overcome this issue by increasing your insurance amount to offset any taxes payable on the TPD benefits. The premium cost of the larger coverage amount within super may very well be cheaper than the premium cost of the insurance coverage you need if you buy your policy outside super.

Other benefits

In addition to the tax benefits associated with TPD insurance within super, you also get to preserve your cash flow since the premium payments are made from the super fund or through pre-tax contributions. The group nature of super funds also makes it possible to get favorable terms for your coverage, which is particularly beneficial for individuals with health conditions that would normally be penalized by private insurance companies. Older insurance buyers also get more favorable terms within than outside superannuation. Read: What Is Disability Insurance?

It is important to understand all the tax advantages or disadvantages that may arise as a result of holding your TPD insurance policy via superannuation. As such, it is advisable to speak to your accountant of financial planner for further guidance before applying for TPD insurance.