TPD, or total and permanent disability insurance, is an insurance product that is often (but not always) held in your super account. This leads many people to be concerned that claiming a TPD benefit will impact their superannuation money. However, claiming a TPD benefit will not usually impact your superannuation account balance. This article will explain why this is the case.
Note: This article considers and discusses TPD insurance benefits held in accumulation-style superannuation accounts and does not consider defined benefit super funds.
Why hold TPD insurance in your super account?
Holding TPD insurance cover in your super account often gives you tax concessions whilst you are working, which can save you money. The tax concessions are created because the insurance premiums are paid using money which has been paid into your super fund (which has not usually been taxed or taxed at a lower rate than your other income).
Otherwise, TPD insurance in your super is something that is often provided by your super fund by default. This means that you are automatically given the insurance at the time that you join the super fund, and you don’t have to apply for the insurance cover. Default insurance will often also cover you for any pre-existing illnesses or injuries.
What happens to your super account balance when you claim TPD?
In short, nothing.
A claim for a TPD benefit is a claim for an insurance benefit. If the claim is approved, any lump sum payment will go into your super and form part of your account balance.
If you need to access super before you reach your retirement age (and you are entitled to do so under a specified ground of release), you are usually taxed at 22%. However, if you are accessing funds from your super under the permanent incapacity ground of release, and 2 doctors agree that you are permanently unable to work again, you can usually access your account balance and your insurance benefit and receive a concessional tax discount. This can be a significant advantage.
Importantly, the TPD benefit is separate from your superannuation account balance and 100% of the benefit is paid by your insurance company. That is, no part of the benefit is your hard-earned super money.
What happens to your super account balance when a TPD claim is approved?
If your TPD benefit is held in super, your account balance goes up!
Because the insurance benefit is held by your super account, any payment after a successful claim will be paid into your super account. Therefore, claiming TPD is not likely to impact your superannuation account balance other than to increase how much super you have.
Once approved and paid into your super account, you will have a bunch of options with the money, which will usually include:
- retain in super;
- roll-over to another super account;
- partial withdrawal (including disability pension options);
- full withdrawal.
Sometimes the claim process for TPD and also withdrawing your super under permanent incapacity grounds can be done by your TPD insurer and super fund at the same time. For this reason, it’s not always clear when the TPD claim is approved and that claim stops, and when the claim to access your super starts.
Before you withdraw any money from super, you should always get financial and tax advice about what option (or combination of options from the list above) is best for you, as decisions made at this stage can have a huge impact on the tax payable on your benefit and your future financial well-being.
Therefore, if you are asked for your bank details for a TPD payment, and you are not sure if you are being paid a TPD benefit out of your super, you should get advice to avoid tax issues.
Importantly, if your TPD benefit is held independent of super, your super account balance is not impacted at all.
Get help from a TPD lawyer
At Berrill & Watson, we are experts with TPD claims and have substantial and intricate knowledge of most funds used across Australia. Our team can assist you with any aspects of your TPD claim, including:
- eligibility for TPD and interpreting TPD definitions;
- concerns around activities of daily living definitions;
- rejected TPD claims;
- insurers taking too long to process a TPD claim;
- requirement to attend medical exams;
- procedural fairness when claiming TPD;
- making multiple TPD claims;
- and more.
Contacting Berrill & Watson
📞 Melbourne: 03 9448 8048
📞 Brisbane: 07 3013 4300
📞 Anywhere else in Australia: 03 9448 8048
How we charge
We are Australia's best-value superannuation/insurance law firm. Other law firms charge nearly double (& sometimes more than double) what we charge. So, if you get a quote from them, or have a cost agreement, ask us what we will charge you.