TPD Life Insurance SMSF – Benefits And Drawbacks

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One of the ways through which you can obtain your TPD or life insurance is through your self-managed super fund (SMSF).

Life insurance provides a payout to your loved ones in case you die.

Total and permanent disability insurance is meant to provide a payout in case you become permanently disabled as a result of illness or injury. This is the kind of disablement that would cause you to never go back to work so you can earn your living.

When a TPD or life insurance policy is held inside an SMSF, it is owned by the trustee of the super fund as opposed to you personally owning it.


One of the advantages of having your TPD or life insurance held in your SMSF is that it is tax effective. For instance, the Australian Tax Office allows certain tax deductions on premiums for any occupation TPD policies. This means that the value of your premiums would be greater, which would also increase the value of your insurance cover. Another advantage of holding your insurance in SMSF is that the premium payments are covered by accumulated funds in the super, which increases your cash flow, click here to know your benefits.


While the benefits of holding your policy in superannuation are evident, you should also be aware of the associated drawbacks. For instance, certain benefits for both TPD and life insurance are taxable. In addition, any contributions you make towards your premiums would count towards the contributions limits provided in the super. If you exceed the limit, a penalty tax is charged on the excess. When the existing funds are used to pay your premiums, this reduces your retirement balances. Note that superannuation is meant to provide a means to save for your retirement. You are also more likely to obtain comprehensive insurance outside super.

Life insurance in super

When you purchase a life insurance policy through an SMSF, it is important to consider your beneficiaries. This is because the insurance policy will release the benefits to the SMSF trustee, who will then decide on the distribution of the funds. It is imperative to lodge a binding nomination with the SMSF and renew this every three years to maintain validity in order to ensure that the benefits are released to the people you intend. Note that depending on the beneficiaries, the payout may be subject to tax.

TPD insurance in super

In the case of Total and Permanent Disability Insurance in SMSF, you need to be cautious about the type of TPD policy you are taking out. Any occupation TPD insurance policies are commonly purchased through SMSF because it is likely that you would receive your benefits if a claim is successful. On the contrary, if you take out an own occupation policy, it may be difficult to access your benefits because the disability definition provided under super does not comply with that of own occupation disability. Read: Most Important Steps For First Time Home Buyers

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Depending on the fund’s provision, you may be able to bundle your TPD life insurance SMSF. Obtaining your insurance via SMSF as opposed to purchasing insurance products directly from an insurance product has its benefits and drawbacks. It is important to get professional advice in order to make an informed decision on the most appropriate approach.