Insights
Life and TPD Insurance: How They Work Together
Written by Safety Nest
The short answer
Life and TPD insurance are two lump sums. Life insurance pays a lump sum if you weren't here, for the people who rely on you. TPD (total and permanent disability) insurance pays you a lump sum if illness or injury leaves you permanently unable to work, as your policy defines it. They often sit side by side in the same super account. But held together, one claim can change the other, and whether you get both, and how much, depends on your fund's rules.
Watch
Life and TPD Insurance in Super: 3 Catches to Check
Read the transcript
What is life and TPD insurance? It's two lump sums. Whether you get both, and how much, depends on your fund's rules.
Life insurance pays a lump sum if you weren't here, for the people who rely on you. TPD pays you a lump sum if illness or injury leaves you permanently unable to work, as your policy defines it. But held together, one claim can change the other.
And there are three catches worth knowing. Let's walk through it with Tom, our example. Tom's a carpenter with a mortgage and two kids.
Like a lot of people, he has life and TPD insurance through his super, packaged together. Say an injury means he can't work again, and his TPD claim is paid. What happens to his life insurance?
So what's the catch? Here's the first one. Because his TPD is packaged with his life insurance, his life insurance may be reduced by the amount the TPD claim paid.
If the two amounts were the same, his life insurance may be reduced to nothing. TPD can also be held on its own, as a separate amount. Each way has its own cost and rules, so it's a trade-off.
The second catch: default insurance in super is a set amount. And Moneysmart notes default insurance might not match your needs. The third catch is when it stops.
In super, TPD usually ends at 65, and life insurance usually ends at 70. And by law, funds cancel insurance on accounts with no contributions for at least 16 months. Your fund will contact you first, and you can tell it you want to keep it.
Default insurance through super can be cheaper and easier than buying it directly. But the premiums generally come out of your super balance, so there's less for retirement. So does Tom's family still have his life insurance?
If his were packaged, it may have been reduced. If they were held separately, it may not have been. Think about yours.
Check your super's annual statement and the PDS: what type you have, how much, and whether a TPD claim would reduce your life insurance. Not sure what yours says? We can go through it with you.
We're Safety Nest. Five stars on Google, and we've helped hundreds of Australians with their life insurance. We advise across major Australian insurers.
Booking takes a few clicks. Pick a day, then a time, add your details, and it's confirmed. It's a no-obligation consultation, and there's no fee for this meeting.
If you take out a policy, the insurer pays us a commission, and you pay the premiums. Book a time at safetynest.com.
au.
How life and TPD insurance fit together
Life insurance is there for the people who rely on you. TPD insurance is there for you, if illness or injury means you can't work again. Many super funds give members both automatically, packaged together, and plenty of people hold them that way without looking at the detail.
The detail matters. There are three catches worth knowing.
An example: Tom
Tom is our example, not a real client. He's a carpenter with a mortgage and two kids. Like a lot of people, he has life and TPD insurance through his super, packaged together.
Say an injury means he can't work again, and his TPD claim is paid. What happens to his life insurance?
Catch one: packaged together
TPD insurance can be bought on its own or packaged with life insurance. When it's packaged, ASIC's Moneysmart says your life insurance may be reduced by any amount paid out on a TPD claim.
So because Tom's TPD is packaged with his life insurance, his life insurance may be reduced by the amount the TPD claim paid. If the two amounts were the same, his life insurance may be reduced to nothing.
TPD can also be held on its own, as a separate amount. Each way has its own cost and rules, so it's a trade-off, not an upgrade. How the TPD definition is worded matters too: see own occupation vs any occupation TPD.
Catch two: a set amount
Default insurance in super is a set amount, and Moneysmart notes that default insurance might not match your needs. A mortgage, kids and years of income to replace can add up to more than a default figure. Our guide on how much life insurance you need walks through the usual way to work it out.
Catch three: when it stops
Insurance in super doesn't last forever. It usually stops at a set age, and that age depends on your fund and its insurer. TPD often ends earlier than life insurance. Your fund's PDS sets out when yours ends.
And by law, super funds cancel insurance on accounts with no contributions for at least 16 months. Your fund will contact you before that happens, and if you want to keep the insurance, you can tell your fund or add money to that account.
The trade-off of holding it in super
Default insurance through super can be cheaper and easier than buying it directly. But the premiums are generally deducted from your super balance, which leaves less for retirement over time. We go through the wider picture in life insurance and superannuation.
So does Tom's family still have his life insurance?
It depends on how it was held. If his life and TPD insurance were packaged, his life insurance may have been reduced by the TPD payment. If they were held separately, it may not have been.
Check yours
Your super fund's annual statement and the product disclosure statement (PDS) usually show:
- what type of insurance you have
- how much you're insured for
- the premiums, and when the insurance ends
Look for whether your TPD is packaged with your life insurance, and whether a TPD claim would reduce your life insurance.
FAQs
Frequently asked questions
Does a TPD claim reduce my life insurance?
It can. When TPD is packaged with life insurance, Moneysmart says your life insurance may be reduced by any amount paid out on a TPD claim. If TPD is held on its own, it may not be.
When does TPD insurance in super end?
It depends on your fund and its insurer, as each sets its own rules. TPD often ends earlier than life insurance, and your fund's PDS sets out the exact ages.
Is the default life and TPD insurance in super enough?
It might not be. Default insurance is a set amount, and Moneysmart notes it might not match your needs. Whether it's enough depends on what you'd need it to do.
Can my life and TPD insurance in super be cancelled?
Yes. By law, super funds cancel insurance on accounts with no contributions for at least 16 months. Your fund will contact you first, and you can tell it you want to keep the insurance.
Where can I see what life and TPD insurance I have?
Your super fund's annual statement and the PDS usually show the type of insurance, the amount, the premiums and when it ends.
Protect your future
Protect your family's financial future
Ready to check your life and TPD insurance? Not sure what yours says? Your specialist can go through it with you. It's a no-obligation consultation, and there's no fee for this meeting. If you take out a policy, the insurer pays us a commission, and you pay the premiums. Click Get Started to book a time.