A total and permanent disability (TPD) insurance policy typically provides you with a payout if you suffer an illness or injury that leads to you being unable to ever return to work again. While you can own a TPD insurance policy under your own name, TPD insurance is most commonly owned through super funds.
This article explores how TPD insurance payouts from superannuation funds work and what you need to keep an eye on when lodging a claim.
Can I Get a TPD Payout From a Superannuation Fund
A number of super funds provide TPD insurance automatically as part of a group insurance policy that covers numerous members of the super simultaneously. Under these policies, the super fund offers a pre-determined amount of TPD cover, typically based on your age. Superannuation is the most common ownership structure for TPD Insurance in Australia and you can receive a TPD payout from a superannuation fund
You can often exercise some control over how much TPD cover you receive through your super. Many people contact their super fund directly to apply for coverage up to a preferred amount. However, note that this coverage may decrease as you get older. It may also increase with changes to the consumer price index (CPI). Additionally, when increasing your cover, your super fund is likely to ask you questions relating to your health which may prevent you from obtaining the cover you desire.
Depending on your super fund, you may be able to fix the amount of cover you have. This tends to come at the cost of higher monthly premiums, especially as you get older. Requests to change the TPD insurance you receive via your super may also lead to the super fund asking questions about your medical health, current working status, and age before accepting your request.
What Is the Minimum Payout for a TPD Claim
The minimum TPD payout from a superannuation fund varies depending on the nature of your policy. Payouts tend to range between $60,000 and $500,000, with an approximate average of $250,000 for insurance that is provided directly by a super fund. Where your cover has been established by a financial adviser, you are often able to insure for in excess of $3,000,000.
You can see the figure that applies to you on your superannuation membership statement or your latest renewal notice.. You may be able to speak to your super fund to increase the size of your payout if you’re willing to pay higher premiums.
How Does a TPD Insurance Claim Work With Super?
Initially, making a TPD claim through your super fund works the same as claiming with an individual policy. You contact your insurer or super fund to inform them of your condition. The insurer collects evidence demonstrating you have an injury or disability that prevents you from working. It then decides whether to grant the claim based on the evidence collected.
That said, the claims process for all TPD policies is quite complex with many different sets of criteria that need to be satisfied for your claim to be accepted. Engaging a TPD Claims Adviser can help you in mitigating the risk of unforeseen issues as well as ensuring the process is handled efficiently.
Assuming your insurer accepts your claim, the policy’s benefit is paid into your superannuation account. In addition to being directly added to your super’s balance, this payment triggers your ability to access the funds in your super. That’s due to TPD benefits only paying out if you can no longer work. Think of it as your super classing you as retiring, thus granting you access to your funds.
What Happens After I Receive My TPD Claim?
Once you gain access to your super funds, you have three options:
- Create an income stream using the balance in your super
- Withdraw the total or a partial amount of your benefit
- Leave the funds in your super, so they can continue to mature
Some supers also allow you to make a partial lump sum withdrawal before you use the rest of the benefit to contribute to an income stream.
Depending on your age and when you created the super, you may have to pay tax on withdrawals. If you’re currently under the super’s preservation age, you’ll pay tax on any income stream you create at a marginal rate, minus a 15% tax offset. Withdrawing the TPD benefit means you pay a lump sum tax, which varies depending on your age and the amount you withdraw. You don’t pay any tax on the benefit if you leave it in your super, though you may have to deal with taxes if you withdraw money in the future.
The Right Super for Potential TPD Claims
Appropriate research helps determine if you have the right super for potential TPD claims. The following steps allow you to learn more about your super and make adjustments based on your needs:
- Check your existing super account to see what, if any, automatic TPD coverage you already have. Once you know how much you can claim, contact the super fund if you wish to increase or change your TPD cover.
- When adjusting your benefit, think about the impact that being unable to work would have on you and your family. As you’ll lose your primary source of income, you need to ensure the benefit is high enough to maintain your standard of living if you stop working. Furthermore, it would help if you accounted for any additional costs related to care.
- Compare your super’s TPD coverage with standalone policies. You may find that an individual policy offers superior coverage at a lower premium. Having a personal policy also gives you more direct access to your benefit without the tax implications that result from withdrawing that benefit from a super.
- Speak to an independent financial advisor if you’re unsure about your TPD insurance needs or the implications of linking your TPD cover to your super.
- Read all exclusions, definitions, and release conditions in the linked TPD policy to ensure you don’t get caught out by any surprises if you need to claim. Contact your insurer or super provider if you’re unsure about any of the terms you see in the paperwork.
What is the average TPD payout?
TPD payment amounts vary drastically in Australia. The amount can range from $50,000 to in excess of $5,000,000 depending on your policy. The average Total Permanent Disability payout from a superannuation fund in Australia is around $250,000. A standalone policy may provide a different average payout amount as you generally have the ability to insure for a greater amount when coverage is established through a financial adviser.
Are TPD payouts considered taxable income?
Should you withdraw your TPD payout as a lump sum it is unlikely to be treated as taxable income however it is likely that tax will be payable on the lump sum prior to you withdrawing the funds. There are many variables when determining how much tax will be taken from your payout and this information can generally be provided to you by your super fund prior to finalising the claim. Superannuation disability payout’s require significant planning as the consequences of accessing your funds via different means (lump sum vs income stream) can have a significant impact on the amount you receive.
Can you return to work after receiving a TPD payout?
The short answer is yes.
There is no time limit placed on an individual returning to work after they have received a total and permanent disability payment however it is unlikely you will be able to establish a new TPD policy after a you have had a TPD claim approved.
Total and Permanent Disability Claim Options
The more you know about TPD insurance, the better equipped you’ll be to select an appropriate TPD policy. The steps in this article ensure you understand what your current coverage offers. However, you may still require help if you need to make a TPD claim via your super.
That’s where Curo Financial Services come in.
We’re specialists in complex TPD claims, including those involving superannuation funds. No matter who provides your cover, we can help you make claims efficiently and professionally. Visit us online if you have any questions about TPD cover or wish to use our TPD claims services.
General Advice Disclaimer
General advice warning: The advice provided is general advice only and in preparing it we did not take into account your investment objectives, financial situation or particular needs. Before making an investment decision on the basis of this advice, you should consider how appropriate the advice is to your particular investment needs, and objectives. You should also consider the relevant Product Disclosure Statement before making any decision relating to a financial product.
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