Changes to Deductions re TPD Insurance

Broadly the Australian life insurance market provides three different types of total and permanent disability (‘TPD’) insurance, namely “any occupation”, “similar occupation” or “own occupation”.

As with all insurances the wording of the TPD definition is critical.

A claim made against a life insurance contract with an “any occupation” TPD definition would only be successful if the insured can’t perform any occupation whatsoever.  This type of definition is not very common.

The “similar occupation” definition typically says that if the insured cannot perform a job which is similar to their current duties then the TPD insurance will be paid.

The “own occupation” definition seeks to pay a claim if the insured cannot perform the occupation they had just prior to permanent disablement.

At present it is possible for super funds to claim a tax deduction for a TPD contract for any of these definitions.

The government has announced that from 1 July 2011, super funds will only get a deduction for TPD contracts which contain a “similar occupation” definition and where permanent disability has been confirmed by two qualified medical practitioners.

All super funds with TPD insurance contracts need to make sure that they check the terms of these contracts to ensure that access to deductions will still be possible.

Those who have a current TPD contract which is not a “similar occupation” definition and want to change to a policy with the new definition but who have concerns about whether they can successfully meet underwriting requirements for that new insurance might need to consider keeping their current TPD policy and simply foregoing the tax deduction.