Disability Insurance

Total and Permanent Disability

Total and Permanent Disability Insurance (TPD) provides you with a lump sum payment if you suffer from an injury or illness where a physical or mental condition prevents you from ever working again. The definition of total & permanent disability will be clearly explained in your policy document.

A serious injury or illness that prevents someone from working can strike anyone from all age groups or employment backgrounds. It may come as a surprise to many that according to statistics: the most common age for a TPD claim is 45 years of age for men and 44 years of age for women.

TPD Insurance can be used to help cover urgent medical expenses, loan or rent payments, general living expenses or rehabilitation costs.

Basically there are two different definitions of a TPD insurance policy which includes the terms ‘own occupation’ or ‘any occupation’.

Own Occupation definition: you can only make a TPD claim if you are permanently disabled from your injury or illness which prevents you from ever working in your usual/chosen occupation. This is the preferred cover which will be slightly more expensive.

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Any Occupation definition: you can only make a TPD claim if you are permanently disabled and unable to perform any occupation that you are reasonably suited to by your experience, education or training. It should be noted that most TPD insurance covers held within a superannuation fund will apply the 'any occupation' definition. This is usually the cheaper policy.

Be sure to read the insurer’s Product Disclosure Statement (PDS) carefully to determine exactly what conditions are included and excluded.

Payments are not usually made until the disability has been evident for six months, and the insurer deems that you are unlikely to ever work again based on medical examinations - and the definition in your particular policy.

TPD Insurance cover premiums are often more affordable than Income Protection or Trauma Insurance although premium costs can be influenced by several factors such as your occupation, age, gender and health.

As you get older some premiums may increase in cost or decrease the level of cover that they provide. Smokers and males will usually pay a higher premium because they are seen to be a higher risk.

A person’s occupation will also affect the cost of the premium. For example someone employed as an auditor or an office manager will be seen as a lesser risk than someone who has a physical job such a construction worker or landscaper.

It is common practice for people to fund their TPD Insurance through their superannuation fund. This will often make it more affordable for them as they can afford a higher level of cover than would otherwise be possible. Premiums can be paid from existing superannuation savings or from pre-tax dollars through salary sacrificing.

The Government can also assist with various concessions such as co-contributions for low-income earners and spouse contributions/rebates which aren’t available when funding TPD insurance outside of your super fund. In addition the premium can be tax deductible if the TPD policy is held within the superannuation fund which is especially helpful for self employed people.

You should seriously consider all of the advantages and disadvantages when determining if TPD Insurance is placed within or outside your super fund.

Whilst tax deductibility of TPD premiums within your superannuation will look attractive; you should also be aware of the onerous conditions of release that are in place which are determined by Superannuation Industry (Supervision) Regulations (SIS Regulations). These strict conditions of release must be met before you can access your TPD benefit.

There may be a tax liability of up to 21.5% when a lump sum TPD benefit is paid from a superannuation fund to the member. The exact amount of tax payable depends on the member’s age, the start date of the service period, and the date of TPD.

A frequent problem that is encountered arises when the member’s TPD insurance policy has the more liberal ‘own occupation’ definition but the superannuation fund has an ‘any occupation’ definition which may prevent you from accessing your benefit. If you are aged below 55 you will need to apply to the fund trustee to make the funds non-preserved so that your TPD payment can be made.

In comparison the whole TPD benefit will be paid tax free if the member owns a personal insurance TPD policy outside of their superannuation. Under these regulations they only have to meet their insurance policy definition to receive their TPD benefit, not the more restrictive SIS definitions.

Your TPD Insurance premium will not be tax deductible if held outside of your super fund however, the TPD benefit payment is tax-free.

Our financial planners at Southern Cross Financial Solutions can advise you of the correct TPD strategy that is tailored to suit your needs.


The information provided on this website has been provided as general advice only. We have not considered your financial circumstances, needs or objectives and you should seek the assistance of your Professional Investment Services Pty Ltd (PIS) Adviser before you make any decision regarding any products mentioned in this communication. Whilst all care has been taken in the preparation of this material, no warranty is given in respect of the information provided and accordingly neither PIS nor its related entities, employees or agents shall be liable on any ground whatsoever with respect to decisions or actions taken as a result of you acting upon such information.