Below is a summary only of total and permanent disability (TPD) through superannuation. This information is general in nature and does not take into account any individual’s financial situation, objective or needs. Further information about the general nature of this article appears in the disclaimer at the end of this article.
When it comes to securing your financial future, being prepared for the unexpected is important. That’s where total and permanent disability (TPD) insurance comes in. It can offer a safety net that provides financial protection if you have a serious illness or injury that leaves you permanently disabled and unable to work again.
In this article, we'll delve into the intricacies of TPD insurance in super, discussing why it’s important, who’s eligible for it, what it covers, and even compare it to purchasing a policy directly from an insurer or through a comparator. By the end, you'll have a better understanding of Super TPD insurance, and how it may be able to protect your overall financial wellbeing.
Understanding TPD Insurance in Superannuation
TPD insurance within superannuation is often automatic cover provided when you join a super fund and meet eligibility criteria. Most working Australians above 25 years of age will have a default amount of life insurance and TPD cover available through their superannuation fund. The cover pays a lump sum if you suffer a total and permanent disability and find yourself unable to work again as a result. This default cover through super can be convenient, as it doesn't require medical underwriting or a detailed medical history. That means it’s accessible to many Australians. you should check with your super fund to find out if you have default TPD cover.
The Importance of TPD Insurance for Financial Security
Life is unpredictable, and unfortunate events can happen when least expected. Would you be able to provide for yourself and your family if you had to stop working altogether after a serious accident or sickness resulted in a permanently disability? Without an alternative source of income, life as you know it could be disrupted. Total and permanent disability insurance typically pays a lump sum benefit to provide a financial safety net in such situations, offering peace of mind and financial protection for you and your loved ones.
Eligibility and Coverage of TPD Insurance in Superannuation
Generally super funds offer a default level of TPD insurance cover when you join their fund and are 25 years and over. This means that when you open a super account, you are likely to have some level of TPD insurance without needing to go through medical underwriting or your detailed medical history. However, it's essential to review your insurance cover to make sure it meets your specific lifestyle needs and circumstances.
Super funds are only permitted to offer TPD cover that covers you if you suffer a permanent disability that leaves you unable to work in Any Occupation for which you are reasonably suited by education, training, or experience. The exact definitions and conditions may vary across different super funds, so it's important to consult the product disclosure statement or contact your super fund for detailed information.
Pros and Cons of TPD Insurance in Superannuation
For many, one of the benefits is the convenience of having your insurance and superannuation in one place. It simplifies financial management and reduces the hassle of extra admin.
Other advantages include:
- TPD insurance super premiums are funded from personal contributions or your super balance, which may be easier on the family budget and an affordable way to have TPD cover.
- You could get automatic acceptance up to a set level of cover without any health questions.
- You may be able to claim a tax deduction for personal contributions or salary sacrifice arrangement using pre-tax salary which can provide cost savings on premiums.
However, there are also some disadvantages to keep in mind:
- TPD insurance within super is typically based on a default level of cover, and you should check if the level of cover is enough for your needs. Depending on your circumstances — family, income, savings, ongoing expenses, and future plans — you might require a higher level of cover to avoid the risk of being underinsured.
- Premiums can eat away at your super account balance over time if you’re not making extra contributions to make up for these costs, and there are super contribution caps which limit the amount you can contribute to superannuation (even to fund premiums held in superannuation).
- To qualify for a TPD payout from a superannuation fund, you must meet the insurance policy definition of ‘incapacity’ as well as the ‘permanent incapacity’ condition of release definition under superannuation law.
- When claiming TPD through super, there could be delays in receiving a disability payout because the process is longer. When you make a claim, after an initial assessment, the super fund will pass your TPD claim onto the insurer to do an assessment. If the insurer approves your claim they will release the payment to the super trustee, who can then pay it to you.
- You’ll need to make sure your TPD superannuation account remains ‘active’, receiving at least one contribution or roll-in every 16 months to avoid the automatic cancellation of your insurance policy under laws designed to prevent erosion of super balances on inactive accounts due to insurance premiums. While this is done to safeguard your super balance, if you tend to leave your super back of mind, your insurance could be cancelled without you realising.
- When it comes to tax, one of the key disadvantages is that any benefit payment may be subject to tax. Generally, TPD payments outside of super are not subject to tax.
TPD Insurance in Superannuation vs. Going Directly to an Insurer
While permanent disability TPD insurance through superannuation offers convenience, obtaining TPD insurance directly from an insurer has its own merits. When you choose to go directly to an insurer, you have greater flexibility in customising your policy to suit your individual circumstances. You can select the level of insurance cover that reflects your personal needs, and you have more control over the policy's terms and conditions.
Ultimately, the decision between TPD insurance in superannuation and directly through an insurer, via a comparator like Lifebroker or through a financial adviser depends on your personal preferences, financial goals, and individual circumstances. It's crucial to consider your needs, review the coverage options, and consider professional advice to make an informed decision that will serve you in the long run.
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