Death and Disability Insurance is often included in the superannuation of many Australians, which is a cornerstone of their retirement planning. Beyond its role in building a nest egg for the future, your super fund can also provide a crucial safety net for you and your family in the event of unforeseen tragedy. This safety net comes in the form of life insurance, together with Death and Total and Permanent Disability (TPD) cover.

While it’s possible to purchase this insurance as a standalone policy, holding it within your superannuation fund offers significant advantages for most people. This article will explore the value of including Death and Disability Insurance (TPD) cover in your super, the differences in tax treatment, what it means to be considered disabled for the purposes of a TPD claim, and why seeking professional advice is paramount in making these important financial decisions.

The Convenience and Cost-Effectiveness of Insurance in Super

One of the most significant benefits of holding Death and Disability Insurance (TPD) cover within your superannuation is the cost-effectiveness. Super funds purchase insurance policies in bulk, which allows them to negotiate lower premiums than an individual could typically obtain on their own. This is known as group insurance. These lower premiums are then passed on to the fund’s members.

Furthermore, the premiums are paid directly from your superannuation account balance, meaning you don’t have to find the money in your after-tax household budget. This can make it a more manageable way to ensure you have this vital protection in place. Most super funds also offer a baseline level of cover that is automatically provided to new members, often without the need for a medical examination. This is known as automatic acceptance, and it can be a significant advantage for individuals who may have pre-existing health conditions that could make it difficult or expensive to obtain cover outside of super.

Key Benefits of Insurance Inside Super

Cost-effectiveness: Super funds negotiate lower group insurance premiums than individuals can obtain
Convenience: Premiums paid directly from super balance, not after-tax household budget
Automatic acceptance: Baseline cover often provided without medical examinations
Tax advantages: Premiums paid with pre-tax dollars through super fund tax deductions

Tax Treatment of Death and Disability Insurance: A Tale of Two Structures

The tax treatment of both the premiums and the potential payout of a Death and Disability Insurance (TPD) claim is a critical factor to consider, and it’s where the distinction between holding insurance inside or outside of super becomes most apparent.

Tax Treatment of Premiums

When you hold Death and Disability Insurance (TPD) cover within your superannuation fund, the premiums are generally tax-deductible to the super fund itself. The fund can claim a tax deduction of 15% on the cost of the insurance premiums, and this tax saving is typically passed on to the member in the form of lower premiums. This effectively means you are paying for your insurance with pre-tax dollars, which can result in significant savings over the life of the policy.

In contrast, if you purchase a standalone Death and Disability Insurance (TPD) policy outside of superannuation, the premiums are paid with your after-tax income and are generally not tax-deductible. The only exception to this is income protection insurance, where the premiums are usually tax-deductible for individuals.

Here is a comparison of the tax treatment of insurance premiums:

Insurance Type	Inside Superannuation	Outside Superannuation
Death Cover	Premiums are tax-deductible to the super fund.	Premiums are generally not tax-deductible.
TPD Cover	Premiums are tax-deductible to the super fund.	Premiums are generally not tax-deductible.
Income Protection	Premiums are tax-deductible to the super fund.	Premiums are generally tax-deductible to the individual.

Tax Treatment of Payouts

The tax treatment of the payout in the event of a claim also differs significantly depending on whether the policy is held inside or outside of super.

Death Benefits

If a death benefit is paid from a superannuation fund, the tax treatment depends on whether the recipient is considered a ‘tax dependant’ under Australian tax law. A tax dependant generally includes a spouse, a child under 18, or any other person who was financially dependent on the deceased. If the benefit is paid to a tax dependant, the entire lump sum is tax-free. However, if the benefit is paid to a non-tax dependant (such as an adult child who is not financially dependent), the taxable component of the lump sum will be taxed at a rate of 15% plus the Medicare levy.

For a standalone life insurance policy held outside of super, the death benefit is generally paid tax-free to the nominated beneficiaries, regardless of their dependency status.

TPD Benefits

A Death and Disability Insurance (TPD) payout from a superannuation fund is generally comprised of a tax-free component and a taxable component. The tax-free component is not subject to tax. The taxable component is taxed, but the rate of tax depends on your age. If you are under your preservation age, the taxable component is generally taxed at 22% (including the Medicare levy). If you have reached your preservation age but are under 60, you may be eligible for a tax offset. If you are over 60, the taxable component is generally tax-free.

For a standalone TPD policy held outside of super, the payout is generally received tax-free.

Here is a comparison of the tax treatment of insurance payouts:

Payout Type	Inside Superannuation	Outside Superannuation
Death Benefit	Tax-free to a tax dependant. Taxable component taxed at 15% + Medicare levy for non-tax dependants.	Generally tax-free to all beneficiaries.
TPD Payout	Comprised of a tax-free and a taxable component. Tax on the taxable component depends on your age.	Generally tax-free.

Understanding Total and Permanent Disability (TPD)

Total and Permanent Disability (TPD) insurance provides a lump sum payment if you become totally and permanently disabled due to illness or injury and are unable to work again. However, the definition of what it means to be ‘totally and permanently disabled’ can vary significantly between insurance policies, and this is a crucial point of distinction between cover held inside and outside of super.

‘Any Occupation’ vs. ‘Own Occupation’

There are two main definitions of TPD:

‘Any Occupation’: This is the standard definition used for TPD cover within superannuation. To meet this definition, you must be unable to ever work again in any occupation for which you are reasonably suited by education, training, or experience. This is a stricter definition and can be more difficult to claim against.
‘Own Occupation’: This definition is more generous and is typically only available with standalone policies held outside of super. To meet this definition, you must be unable to ever work again in your own occupation. This type of cover is more expensive, but it provides a higher level of protection as it is easier to make a successful claim.

Common TPD Claims

According to research from WithStand Lawyers, the most common conditions leading to TPD claims in Australia are:

Musculoskeletal disorders (31%): This includes serious back, neck, and joint injuries.
Disease (30%): This includes conditions such as cancer, heart disease, and other chronic illnesses.
Mental illness (20%): This includes conditions such as post-traumatic stress disorder (PTSD), depression, and severe anxiety.
Injury or fracture (14%): This includes injuries resulting from accidents or trauma.

The Claims Process

To make a Death and Disability Insurance (TPD) claim, you will need to provide medical evidence to support your claim that you meet the insurer’s definition of total and permanent disability. This can be a complex and lengthy process, and it is important to have a clear understanding of the requirements of your policy. The success of a TPD claim often hinges on the quality and completeness of the medical evidence provided.

Key Statistics and Research Findings

TPD Claim Success Rate: Approximately 84-86% of TPD claims are successful in Australia
Claim Withdrawal Reasons: 41% consumer decision, 40% lack of response to insurer requests
Insurance Literacy: Research shows many Australians don’t understand personal insurance value
Underinsurance Problem: Significant issue in Australia due to poor purchase decisions

The Importance of Professional Financial Advice

In today’s digital age, it can be tempting to purchase insurance online without seeking professional advice. However, this approach comes with significant risks. Online insurance platforms often use simple questionnaires that cannot capture the complexities of your personal and financial situation. This can lead to you being underinsured, over-insured, or having a policy that is not appropriate for your needs. A 2018 study on insurance literacy in Australia found that many Australians do not understand the value of personal insurance, which can lead to poor purchasing decisions [1].

Seeking advice from a qualified financial adviser is the best way to ensure you have the right type and amount of insurance cover in place. A financial adviser will conduct a comprehensive needs analysis to determine your specific insurance requirements. They will take into account your personal circumstances, financial goals, and risk tolerance to recommend a tailored insurance solution. As noted by ASIC’s MoneySmart service, a financial adviser can help you set financial goals and put strategies in place to achieve them [2].

A financial adviser can also provide invaluable assistance in the event of a claim. They can help you navigate the claims process, ensure you have all the necessary documentation, and advocate on your behalf with the insurance company. This can be particularly important for TPD claims, which can be complex and challenging to navigate on your own.

Professional Advice vs Online Purchases

Risks of Online Insurance Buying

Under/over-insuring: Simple questionnaires miss complex personal situations
Limited risk assessment: Cannot capture full financial complexity
Higher claim denial risk: 42% of disputed claims involve social media evidence
No ongoing support: No relationship for claims assistance or reviews

Benefits of Professional Advice

Comprehensive needs analysis: Tailored to personal circumstances and goals
Risk profiling: Proper matching of coverage to risk tolerance
Claims assistance: Navigation of complex claims processes
Ongoing reviews: Annual adjustments for changing circumstances
Consumer protections: Licensed advisers with professional indemnity insurance

Conclusion

For most Australians, holding Death and Disability Insurance (TPD) cover within their superannuation fund is a smart and cost-effective way to protect themselves and their families. The tax-deductibility of premiums makes it an affordable option, and the convenience of having the premiums paid directly from your super account makes it easy to manage. However, it is crucial to understand the limitations of cover within super, particularly the stricter ‘any occupation’ definition for TPD claims.

Ultimately, the decision of whether to hold insurance inside or outside of super, and how much cover you need, is a personal one that should be based on your individual circumstances. The best way to make an informed decision is to seek advice from a qualified financial adviser. They can help you understand your options, choose the right Death and Disability Insurance (TPD) cover for your needs, and ensure you have a robust financial safety net in place for the future.

We have a seven step process which ensures that your individual needs are met. First, we provide a face to face, free consultation with no obligation. Then we gather information about your lifestyle and income, establish your goals, create a strategy and let you review it. Once you give the OK, we proceed.

Conclusion Points

Most Australians benefit from holding Death and TPD cover inside super due to cost and tax advantages
Understand limitations: “Any occupation” TPD definition is stricter than standalone policies
Professional advice essential: Complex decisions require expert guidance for optimal outcomes
Individual assessment needed: Personal circumstances determine best insurance structure

References

[1] Driver, T., Brimble, M., & Freudenberg, B. (2018). Insurance literacy in Australia: Not knowing the value of personal insurance. Financial Planning Research Journal, 4(1), 33-55. https://sciendo.com/2/v2/download/article/10.2478/fprj-2018-0003.pdf

[2] Australian Securities and Investments Commission. (n.d.). Working with a financial adviser. Moneysmart.gov.au. https://moneysmart.gov.au/financial-advice/working-with-a-financial-adviser

[3] Australian Taxation Office. (2025, June 18). Paying superannuation death benefits. https://www.ato.gov.au/tax-and-super-professionals/for-superannuation-professionals/apra-regulated-funds/paying-benefits/paying-superannuation-death-benefits

[4] AIA Australia. (2022, July). TPD: Inside or outside superannuation or both? https://www.aia.com.au/content/dam/au-wise/en/docs/policy-docs/tpd-inside-outside-super.pdf

[5] Australian Securities and Investments Commission. (n.d.). Total and permanent disability (TPD) insurance. Moneysmart.gov.au. https://moneysmart.gov.au/how-life-insurance-works/total-and-permanent-disability-tpd-insurance

[6] WithStand Lawyers. (2025, August 16). TPD Claim Statistics Australia | Success, Refusal & Trends. https://www.withstandlawyers.com.au/tpd-claim-statistics/

Bruce Blee 2 months ago

Thanks once again Tracy for providing me with options and information relevant to my portfolio .

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Paul Wedd 3 months ago

My meeting with Daniel was very positive as we discussed a range of issues in relation to my superannuation and my financial and personal health which were pertinent to me. Also looked at what if cash flow scenarios in regard to bookkeeping opportunities and creating a new super fund if matters come to pass. Also the coffee and biscuits were great.

Nicky T 4 months ago

Dan genuinely cares about my personal circumstances and supports my finacial goals as an individual with specific needs.

Richard Gordon 4 months ago

The team at Approved Financial Planners has been amazing in supporting and guiding us through the development of a financial plan for our future. From the beginning, they took the time to truly understand our goals and objectives, making us feel heard and valued.

What stood out was their ability to present tailored scenarios with adjustable factors, helping us make informed decisions with confidence. They also went above and beyond by assisting with the implementation of important elements such as insurance and wills, giving us peace of mind that our family's assets are protected in case of the unexpected.

We’re incredibly grateful for their professionalism, care, and expertise. Highly recommend their services to anyone looking for reliable and thoughtful financial planning.

Steve Giaquinto 5 months ago

I have been with Approved Financial Planners for a long time now. Great Advice and service. Tracey has a wealth of knowledge and has helped me achieve my financial goals with ease.

David Russell 5 months ago

On March 6 both Cindy and I had our annual financial review with Approved Financial Planners in Floreat WA. Our financial planner is Tracey Corbett and this is our second year where Tracey has been our planner and her advice has been very informative and is explained in such a way that both Cindy and I can understand. All sections of both our financial plans were presented and explained in lay-man terms.

We are both looking forward to seeing Tracey next year for our next review.

Robert Dale 6 months ago

Tracey has been a honest and helpful advisor who has her clients interest at heart.

Karlee Palmer 7 months ago

Tracey and the team at Approved have been a great help.. very helpful and supportive

Anne-Audrey LATSCHA 7 months ago

I am extremely satisfied with the services provided by Tracey at Approved Financial Planners. I appreciate the attention to details, the follow up, the prompt responses, the patience in assessing and explaining options. I also appreciate the attention to customer also provided by the rest of the team. Highly recommended !

Ken Miller 7 months ago

Just completed another annual review with Dan at Approved Financial Planners. It is so nice to see such positive and pleasing results as presented by Dan and to know our financial planning is in good hands. Ongoing planning and advice from Dan is always welcoming and if Dan is not available, we have found Christa the office manager always willing and able to assist and deal with any queries we may have. So, needing a financial adviser then contact Dan and his team at Approved Financial Planners

Ken and Anne Miller

tim palmer 7 months ago

Thanks Dan and Staff for the annual review. The forecasting for retirement and the software used was very illustrative and useful to understand. Growth in funds and super has been robust in the last 12 months and advice for the next 12 months taken on board. Look fwd to making a few tweaks to the portfolio once the report is completed.

Maureen Campbell 7 months ago

I've been working with Dan for over 10 years & I have been consistently impressed with his level of professionalism and expertise.
He offers a comprehensive yearly review of my investment portfolio, pension balance, cash flow & estate planning. Dan stays up to date with current trends in finance which gives me confidence that my financial plan is aligned with current best practices.
I appreciate his strategies to maximise my superannuation, ensuring I'm on track for the future.
I also want to mention the support from his team, they are friendly & professional.
I highly recommend Dan.

John Twigg 8 months ago

Hi People - just a quick note letting everyone know that AFP have been nothing but totally professional with my business over the past few years. Tracey has been my latest advisor and I have nothing but praise for her friendliness, approachability and advice covering everything from the value of second-hand cars to having my will updated.

Bev Philpott 8 months ago

Tracey is our new planner. We find her to be friendly and very down to earth. We appreciate having things explained in terms we understand. We hope to have a long relationship with her in her role as our financial planner.

Cheryl Pooley 9 months ago

Attended a meeting with Tracey Corbett to review financial situation. Meeting went well, Tracey is always very helpful and would recommend Approved Financial Planners to anyone seeking financial advice.

Juan Ceballos 9 months ago

We are happy with their service and their advice. We followed their recommendations and we now have achieved our goals in the short term. We recommend them.

Shannon Bedford 9 months ago

Daniel has been providing me with Financial Planning for several years now. My financial literacy is pretty poor so it's great to work with someone who explains things in a manner that is easy to understand. I'm a visual person, so I like that he is able to plug figures into charts and quickly show me the outcomes of various scenarios. Daniel is gives great advice, is realistic about my goals and is also an easy person to talk to.

Erwin Norbert Babooram 9 months ago

We have been clients of Approved Financial Planners since 2018, and we couldn’t be happier with the service they’ve provided over the years. Daniel Stevens has been an exceptional adviser, making us feel like so much more than just clients. His advice has been instrumental in our financial growth, helping us stay focused on achievable goals while always keeping our best interests at heart.

One of the highlights of working with Daniel is the annual catch-up—he takes the time to truly understand where we are in our financial journey and provides tailored advice to keep us on track. It’s clear how much he genuinely cares about helping us reach our goals.

Having worked with Approved Financial Planners for years, we can confidently say their expertise and dedication have made a significant difference in our lives. We highly recommend them to anyone looking for professional, personalised financial advice.

Rheon Plug 10 months ago

I have recently had my Annual Review with Tracey.
Tracey has been very helpful and supportive with my long and short term financial goals.
She is very professional and friendly and comes with a lot of super helpful knowledge and information.
I'm very excited to see what can be achieved long term with Tracey and team!

Thanks again to the team at Approved Financial Planners.

Beverly Blight 10 months ago

A relaxing experience for such a burdening issue. Tracey and her team have welcomed us to her flock with an attitude rarely seen these days, 'anything is possible'. Thankyou for making our finances seem 'too easy'. We will recommend this Company to all that need financial help.

The Convenience and Cost-Effectiveness of Insurance in Super

Key Benefits of Insurance Inside Super