Strategies to manage TPD payments through super

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As many advisers do not provide advice on managing total and permanent disablement (TPD) payments on a frequent basis, this paper provides a refresher to help them ensure their knowledge is up to date. Further, it explores lump sum payments, income streams and other options to maximise social security payments.

Accessing a TPD benefit through superannuation

To access a TPD insurance benefit from a superannuation fund, your client must initially satisfy the insurance policy definition.

If a client's policy was in place before 1 July 2014, the TPD definition could vary from the current definitions. For example, the policy may have an 'own occupation' definition, 'homemaker' definition or a modified TPD definition.

If the policy definition is satisfied, the proceeds are paid from the insurer and added to the client's superannuation balance but will not be treated as a superannuation contribution. At this point, the insurance proceeds increase the taxable component.

To access money as a lump sum or income stream, the permanent incapacity condition of release or other condition of release must be satisfied.

Permanent incapacity occurs when a client has physical or mental ill-health, and the trustee is reasonably satisfied that they are unlikely to engage in gainful employment for which they are reasonably qualified by education, training or experience. The fund trustee generally requests medical certification from two legally qualified medical practitioners when making an assessment.