Is TPD Insurance Taxable?

When considering if your TPD insurance is taxable, it’s important to look at where you bought the insurance. If you bought your TPD insurance through your superannuation fund, then the premiums are potentially tax-deductible. However, if you bought the insurance privately, then it won’t be tax-deductible. 

This table should explain the differences between TPD insurance and taxes: 

Inside of Super Outside of Super
Premiums Tax-deductible Not tax-deductible
Benefits Potentially taxed Not-taxed

 

So as you can see, if you buy your TPD insurance through your superannuation account, while the premiums are tax-deductible, the benefits will potentially be taxed. Similarly, if you buy your TPD insurance outside of your superannuation account, the premiums are not tax-deductible, but the benefits are not taxed at all. So, there are pros and cons to either purchasing methods. 

Are TPD Insurance Premiums Tax Deductible?

Let’s go into the TPD Insurance Premiums in more detail. 

TPD insurance premiums can be tax-deductible, depending on where you bought your insurance, and also what you are claiming for. As said before, if you bought your insurance through a private insurer, your TPD Insurance Premiums will not be tax-deductible. If you bought your TPD Insurance through your superannuation fund, then they potentially can be. The amount of premium available depends on the type of cover you have. 

Below is a table for a brief overview of the types of cover and their deductibles. We go into more detail about this in this blog here. 

Type of TPD Amount of deductible premium
Any Occupation  100%
Any Occupation with either of these inclusions: 

  • Activities of daily living
  • Cognitive loss
  • Limb Loss
  • Domestic duties
 100%
Own Occupation 67%
Own Occupation with either of these inclusions: 

  • Activities of daily living
  • Cognitive loss
  • Limb Loss
  • Domestic duties
 67%
Own occupation bundled with death/life cover 80%
Own occupation bundled with death/life cover with either of these inclusions: 

  • Activities of daily living
  • Cognitive loss
  • Limb Loss
  • Domestic duties
 80%

 

How are TPD Payouts Taxed?

TPD insurance payouts can vary, depending on how you make your withdrawal. For example, if you bought your TPD insurance through your superannuation, it might be taxed when you make a claim. The amount it potentially could be taxed will depend on your age, how you want to claim the payment, and how much money you have in your super account. 

All too often, when you get your TPD payout through your superannuation fund, you will want to withdraw your entire superannuation fund immediately. However, did you know that this can cause you to spend thousands of dollars in tax unnecessarily? 

Your rates of tax on your superannuation fund vary as to when you decide to withdraw. This next table will show to you the different methods of claiming your superannuation money, and what the tax process will be. 

Method of Claiming Money Process
You withdraw a lump sum before you reach the preservation age (between 56-60) You can withdraw it, but you must pay a superannuation lump sum withdrawal tax on the taxable component. This will be at a rate of 20% plus the Medicare levy.
You withdraw a lump sum after you turn 56, but before you turn 60 You can withdraw it, but you must pay a superannuation lump sum withdrawal tax on the taxable component. This will be at a rate of 15% plus the Medicare levy.
You start an income stream Your taxable component will be at a marginal tax rate, but with a 15% tax-offset. 
You leave the balance in your super account until you turn 60 If you leave your claim money in your superannuation account until you are 60, then it is tax-free when you withdraw it. 

 

You have every right to make your TPD insurance claim. If you have TPD insurance, either through your superannuation fund or privately, you can make your claim and should you be successful, may be entitled to a lump sum. This article looked at the types of insurance and the benefits, premiums, and taxes of each variable. If you think you have a claim with your TPD insurance, please use our TPD calculator to work out how much you may be owed. 

 Please remember that this blog is not in lieu of proper accounting advice – should you need that, then please talk to a financial professional.