The total and permanent disability insurance was developed to take care of your expenses in the event that you are unable to work anymore due to an injury or an illness. As with other forms of income streams, the TPD insurance premiums are subject to tax. Tax deductions, which are removed from taxable income thus reducing the total tax, are applicable for TPD insurance premiums.
Tax deductions are permitted for insurance premiums which are paid via a superannuation fund. Some of the insurance premiums are fully deductible, while others are only partially deductible. You can get a 30 per cent tax deductibility of TPD insurance premiums if you have a whole of life policy. Previously, it was possible to claim tax deductions for all TPD insurance premiums which were paid by superannuation funds. However, this changed when the Australian Taxation Office clarified that not all TPD premiums were tax deductible.
Tax Deductibility Of 'Any Occupation' Premiums
Currently, 100 per cent tax deductibility of TPD insurance premiums is possible if at the time of claiming the benefit, you will be able to meet the disability superannuation benefit definition, under 'any occupation'. The disability superannuation benefit definition is met if you have suffered from physical and mental health; you cannot be gainfully employed anymore in an occupation for which you are qualified by training, experience, or education and two medical practitioners have certified that you have the two preceding conditions.
Tax Deductibility For 'Own Occupation' Premiums
The 'own occupation' definition of the TPD policy is met when you get an injury or illness that makes you permanently incapable of working in your current occupation. Tax deductibility of TPD insurance premiums for 'own occupation' under the superannuation fund is 67 per cent; TPD 'own occupation' with one or more of - daily living activities, home duties, cognitive loss and loss of limbs - is 67 per cent; TPD 'own occupation' with life cover is 80 per cent; while TPD 'own occupation' with one or more of - daily living activities, home duties, cognitive loss and loss of limbs - is 80 per cent.
If your total and permanent disability insurance cover is held within a superannuation fund, there are some conditions you will have to meet before you can lay claim to the benefits. You will first have to meet the TPD definition so that the claim can be paid. You will then have to meet the definition of permanent incapacity under the superannuation law in order to access the money. You will also need to meet the definition of 'disability super benefit' so that a tax-free amount can be calculated from your lump sum.
Several insurers have in the recent past come up with split premiums. This happens when a super fund holds an 'any occupation' cover for a member, and gets a 100 per cent deduction for the premium paid. On the other hand, the member owns the part of the policy for 'own occupation' and gets tax deductions for this portion. In case of a claim when the 'any occupation' definition is satisfied, the super fund will be entitled to the benefit from which it will be able to pay the member. If only the 'own occupation' definition is satisfied, then the benefit will be paid directly to the individual.
Kerrie peacock is committed to insurance coverage study in order to assist end consumers make informed choices. For more information on income protection and various other associated policies click here.