Do I have to pay tax on my TPD insurance payout?
You’re finally getting a Total and Permanent Disability (TPD) payout approved—huge moment. But then comes the curly question:
“Wait... do I have to pay tax on this?”
If your TPD insurance is through your super, and you’re under 60 when the payout hits your account—yep, you’ll likely owe tax.
When does tax apply to TPD payouts?
Here’s the general rule: if your premiums were tax-deductible, then your payout will likely be taxed.
That means:
If your TPD is held inside super and claimed under the any occupation definition, it’ll be taxed
If your policy is own occupation and held outside super, the payout is tax-free
(Source: Moneysmart)
So yes, the structure matters:
Super payout = taxed (in most cases)
Outside super (own occ) = tax-free
Tax treatment explained
According to Australian TPD claim resources, here’s what you can expect:
If you claim TPD through super and you're under 60, you could pay up to 22% tax on the taxable component (Source: TPD Claims Advice)
Your payout is split into:
Tax-free component – not taxed
Taxable component – taxed at marginal rates (up to 22%)
The actual percentage depends on how long you’ve been in your super and your age at claim. (SOURCE: Moneysmart)
Many advisers factor in a small buffer when calculating your TPD cover to account for potential tax on the payout.
Real quick: What does “own occupation” mean?
Own occupation: You’re covered if you can’t work in your specific job anymore (e.g. a surgeon who loses hand dexterity)
Any occupation: You’re only covered if you can’t work in any job you’re suited for
Own occupation policies are usually held outside super, meaning tax-free payouts.
(Source: MetLife)
So can I avoid tax completely?
Yes, if your TPD policy is structured outside super, or if your payout is under the own occupation definition and paid out of super directly.
Otherwise, expect tax. That’s why getting the structure right from day one makes a huge difference.
Real Aussie case takeaways
Some Australians are shocked to find out that TPD payouts through super are taxed, especially after already factoring in the full amount into their plans. (SOURCE: Aussie Injury Lawyers)
This is why advisers build in a tax buffer when helping you choose how much to cover.
How to plan ahead for tax on a TPD payout
✅ Know your policy structure – Ask: is it through super? What occupation definition?
✅ Talk to your adviser – Add a buffer to your insured amount to cover tax
✅ Ask about cashflow – If you need to roll over your payout or convert it to income
“If your payout is meant to last decades, you don’t want to lose 20% of it to tax.”
Let’s recap!
TPD insurance through super can be taxed if claimed before age 60
Tax depends on age, policy structure, and definition of occupation
Own occupation outside super = tax-free
Advisers usually recommend a buffer to account for tax
Need help figuring out if your TPD setup could get taxed? Have a chat with your financial adviser to sort it out (no jargon, no surprises).