Death TPD Insurance Deductible: How Much Of Your Premium Is Deductible?

Copyright (c) 2014 Kerrie Peacock

Death TPD Insurance Deductible is a key incentive for seeking cover through complying superannuation funds. However, you need to know the right type of cover that offers the best tax deductions.

Buy A Whole Of Life Policy For 30% Death TPD Insurance Deductible

The Australian Taxation Office states that whole of life policies inside superannuation can benefit from a deduction of 30% of premium payments. This is based on certain conditions:

(i) All the people whose lives are insured must be members of the super fund.

(ii) The premiums for such whole of life policies should not be dissected. This means that the component of the premium attributable to life or disability cover should be bundled with the component of the premium relating to other features of the policy (based on the Income Tax Assessment Act (ITAA) 1997, paragraph 295-480(1)(b)). The components of such a policy relating to investment, administration and risk should not be readily identified.

Less Deduction For Policies That Are Not Whole Of Life Cover

If you buy any other life/ TPD insurance policy apart from whole of life cover, you can still benefit from tax deductions on your premiums. However, the amount of tax deduction would be much lower.

According to the Australian Taxation Office, 30% tax deduction would only apply to the part of your insurance premium that would be a whole of life cover if it was a separate policy. This means that you will not benefit from any tax deduction on the remaining part of your premium that doesn't fit the description of a whole of life policy.

Tax Deduction On TPD Any Occupation Cover

You can also benefit from 100% tax deduction on the portion of your insurance premium that provides TPD any occupation cover (based on the Income Tax Assessment Act (ITAA) 1997, section 295-460). This may simply be TPD any occupation cover or TPD any occupation cover having one or more inclusions of cognitive loss, activities of daily living, domestic duties and loss of limb.

A policy holder must clearly differentiate between TPD any occupation and TPD own occupation cover, since the 100% tax deduction only applies to TPD any occupation cover:

(a) TPD own occupation covers a specific area of occupation as compared to TPD any occupation cover. Own occupation mostly applies to people in specialized fields such as medical practitioners. In this case, the insurer would pay a particular amount when the insured person is incapable of performing the duties in his/ her specialist occupation, even if he/ she can still practice in other related occupations.

(b) TPD any occupation offers a much wide cover compared to TPD own occupation. This includes any occupation that the insured person is reasonably qualified through training, education or experience. In this case, the policy holder would receive a benefit payment only when he/ she is incapable of engaging in gainful employment within this broad definition of occupation.

Lastly you need to remember that a portion of your death/ TPD benefit will still get taxed when you or your beneficiary receives payment. However such a tax will be at a lower rate compared to the ordinary marginal rate. For instance, the Australian Taxation Office (ATO) states that the taxable component within a disability super benefit for someone below preservation age would have a tax offset that reduces the tax rate by 15%.

Kerrie Peacock regularly reviews taxation issues affecting the life insurance industry. For details on a cover that can work for you visit http://www.mecovered.com.au/death-tpd-insurance-deductible.

---

Orignal From: Death TPD Insurance Deductible: How Much Of Your Premium Is Deductible?