Six things you may not have known about TPD insurance claims
While Total and Permanent Disability insurance (otherwise known as TPD) is a common insurance held in superannuation funds, it can be a difficult policy to navigate.
1. TPD benefits are either “all or nothing”
As the name suggests, when your superannuation TPD claim is assessed, you either are or are not totally and permanently disabled.
Unlike workers’ compensation where you may be entitled to some kind of payment for a work-related injury regardless of severity, if you don’t fit the bill for being “totally and permanently” disabled under your particular policy, you won’t receive any benefit.
Don’t let the words “permanently” and “disabled” scare you though. You don’t need to be unfit for ALL types of work – only the work that is within your education, training and experience. It doesn’t suggest that you can’t work at all, or ever again.
Note: There is another type of coverage that’s designed to assist individuals who are unable to work for a limited period of time due to an injury, illness or other disability – it’s called TTD; or Total and Temporary Disability which are continuous payments (usually monthly).
2. TPD insurance claims are paid as a one-off cash benefit
A successful TPD insurance claim will pay out your benefit in the form of a lump sum directly into your superannuation account.
You’ll usually need to make an initial withdrawal to pay any solicitor fees and medical costs, however, once those have been settled, it is completely up to you how you receive the money (and what you use it for).
Once deposited into your superannuation account, you can opt to withdraw the benefit in full, or through a superannuation income stream, or even leave the money in the account to accumulate for your retirement.
It’s worth noting that tax is payable on your TPD benefit when you withdraw it from your superannuation account before you reach retirement age.
3. TPD does cover mental illness and psychological injury
It’s a common misconception that injuries must be physical in order to establish a total and permanent disability and be eligible to claim TPD.
But it doesn’t matter whether the injury or illness is physical, or psychological, or even what type of mental illness or injury it is.
Common mental illnesses covered by TPD insurance include depression, anxiety, adjustment disorder, PTSD, chronic pain syndrome, and schizophrenia disorder.
It doesn’t matter how the mental illness came about; the root cause of your mental illness is not a deciding factor when making a TPD claim – it only matters that you can prove it prevents you from being able to work.
4. You can claim TPD insurance on top of workers’ compensation
Being eligible to claim TPD insurance isn’t conditional on you receiving compensation from only one method.
This means that you can often claim on your TPD insurance in addition to workers’ compensation (and any other compensation type, like CTP or TAC claims under the Motor Vehicle Accident Act) without your entitlement to those benefits being impacted.
Note: You may also be able to make a TPD claim against multiple super funds, or with an income protection claim at the same time.
5. Making a TPD claim does not affect your superannuation balance
Another common misconception, and one of the greatest concerns of clients, is that superannuation TPD insurance claims affect your superannuation balance. But this is not true.
While TPD payouts are paid into your superannuation account, it does not impact your hard-earned retirement fund.
More specifically, a TPD benefit is not an advancement of your own funds – it is payable in addition to your existing superannuation balance.
6. A TPD payout may affect your Centrelink benefits
As mentioned above, payouts from your superannuation disability policy go directly into your superannuation account. Since your superannuation is excluded from Centrelink means testing until retirement age, it shouldn’t affect your Centrelink entitlement at this stage.
It is only when you withdraw your TPD payout from your superannuation account that it may have an impact on your Centrelink entitlements – depending on what you do with it.
For example, Centrelink will only generally assess the amount as “assets” if you withdraw the money and leave it in a bank account. If you withdraw it to pay your mortgage or bills, however, the amount generally won’t be assessed.