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TPD Insurance through super fund payout question.

Discussion in 'Superannuation, SMSF & Personal Insurance' started by Fireblade, 14th Dec, 2008.

  1. Fireblade

    Fireblade Member

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    Hi

    My wife has a TPD insurance policy through her super fund and has made a claim on it due to her ill health.

    Claim has been accepted by the super funds insurance company and the super fund has received the cheque.

    The super fund is now saying that the proceeds of the cheque have to be paid into their account and held in some "cash option holding" (could not quite get the terminology right)...for nearly 2 weeks and can not tranfer the cash to our account till the 22nd December.

    My wife has been off work for several months now and I would have thought that an insurance payout should come straight to the beneficiary to help with their ongoing care and support?

    Is this standard procedure for a super fund to hold on to insurance payouts like this?

    Thankyou.
     
  2. Andrew Newman

    Andrew Newman Well-Known Member

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    Hi Fireblade

    In short, the answer is YES - as detailed below

    An insurance policy held through a super fund is owned by the trustee of the super fund and the fund member is the life insured.

    When a claim is made, the insurance benefit is paid to the trustee. The trustee will determine how the insurance benefit may be paid in accordance with the relevant trust deed and superannuation law.

    The entire super benefit must be held in the super fund until a condition of release is satisfied such as permanent incapacity.

    Please note that not all TPD claims will meet the definition of permanent incapacity under superannuation law. Where this is the case the trustee will hold the entire super benefit until a condition of release is satisfied.
     
  3. Fireblade

    Fireblade Member

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    They said to us that the conditions of release have been met. They told us that the funds need to be paid into their cash managemant account which they can only access every 14 days.
     
  4. AsxBroker

    AsxBroker Well-Known Member

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    Hi Fireblade,

    I'm sorry to hear about your wife. It is obviously a very difficult time.

    Thank god for insurance!

    Unfortunately the statutorily required amount is very low.

    As Andrew says an Own Occupation TPD will probably not payout from a superannuation whereas Any Occupation TPD more likely will.

    It can be very frustrating waiting for the claims area to make a decision. In the time that your wife has been off work, if she has Income Protection this should be paying after the waiting period while you are waiting for the TPD payment.

    Also two weeks is a very short time period to wait for a super fund to release funds, usually I tell clients 2 to 4 weeks is a normal amount of time.

    Andrew also said that super funds can only release funds once a Condition of Release is met, this is why Trauma cover is not usually available in superannuation.

    Cheers,

    Dan

    PS Before making an insurance decision speak to your FPA registered Financial Planner.
     
  5. Andrew Newman

    Andrew Newman Well-Known Member

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    Hi Firebalde

    If the super fund has confirmed a condition of release has been met, then the super benefit can be paid out. Depending on which super fund, it can take several weeks. However, I would be calling the super fund to ensure they are processing the request.

    As AsxBroker has indicated and given what has happended to your wife, please ensure you have adequate personal insurance. Refer to a previous post with regard to personal insurance.

    http://www.invested.com.au/2/startegies-young-professional-couples-35787/index2.html#post68043
     
  6. Insurance Specialist 2009

    Insurance Specialist 2009 New Member

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    Hi Fireblade,

    As other repliers have mentioned, each superfund details how it will payout money under differing conditions in its trust deed.

    For any money to be paid from super certain events need to occur;
    1- The person withdrawing the money must satisfy conditions of release, such as permanent incapacity. Once this is satisfied,
    2-The trustees must meet ( which may be why you have not been paid as yet) to decide to distribute the funds.

    Most insurance payouts are not quick (ie, less than 2 weeks), and therefore you may be able to cover the gap time with making a claim on you Income Protection insurance- provided you have any.

    Also keep in mind, with Income Protection Insurance, there are stipulated waiting periods that you would have agreed to in the initial contract which thus deteremined the premiums you would pay.

    For those who are interested- I have found in my experience that MLC is good, as they do offer TPD that will pay out before the trustees meet provided you have met a condition of release.

    Please note this advise is not specific to you, nor does it take into account your personal circumstances.
     
  7. Fireblade

    Fireblade Member

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    We got the payout a while back..the thing that gets me is that the taxman took $80,000.00 out! We are talking about money that a person might need to live the rest of their lives on and the Govt. sees fit to take 10%.....talk about robbing people in wheelchairs!!
     
  8. Andrew Newman

    Andrew Newman Well-Known Member

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    Hi Fireblade,

    Good news that the payout was received but unfortunate about the tax on the payout.

    For your information:

    • Outside super, TPD premiums are not tax deductible however the benefit payment is tax-free if paid to the injured person or their relative.

    • Inside super, the reverse generally applies, so premiums you pay are tax deductible for the super fund, but the benefit payment you receive is taxed.
    That's why it's so important to get expert advice on insurance - on the best way to hold the insurance policy and to ensure if a claim is made, it is sufficient to cover the need.

    Kind Regards
     
  9. Fireblade

    Fireblade Member

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    You would think though that a payout for a PERMANENT DISABILITY would be excempt from all tax seeing as this is the only money that person has to rely on in the future...or is the Govt getting its last GRAB from that person seeing as they are no longer able to contribute regular tax installments?

    If you ask me it sucks!!
     
  10. AsxBroker

    AsxBroker Well-Known Member

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    Hi Fireblade,

    As Andrew said, usually if a tax-deduction is received, it is taxable, if no deduction received, it is not taxable.

    You can read more about the taxation on withdrawals here TOWER :: Customer Information Module - Superannuation - Superannuation Taxation & Regulation under Tax on Withdrawal.

    This is why it is very important to seek specific advice.
    Unfortunately the Australian attitude is that it'll be alright and only realise that it isn't alright when it is too late.

    The payment may have been taxed even more harshly under the previous TPD rules which were linked to Lump Sum RBLs.

    Cheers,

    Dan
     
  11. Fireblade

    Fireblade Member

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    Yes I realise the tax laws etc etc..but you would think that human decency would allow a TPD person to be tax free.

    Also...my wifes SUPER remains untouched...so its not like its come out of her super..this is an insurance policy on her super...her super remains untouched.

    My point is I think its pretty scummy of the Govt. to tax someones disability payout....its like kicking the cane out from under a cripple.
     
  12. Andrew Newman

    Andrew Newman Well-Known Member

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    Hi Fireblade

    I can understand your frustration but we need to have laws.

    May I suggest that you contact your local member of Parliament and let them know of your situation. This is how many laws are ultimately changed.

    Kind Regards
     
  13. the risk store

    the risk store New Member

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    It won't always be "alright', indeed

    I have only just discovered this thread as I was searching for case studies on TPD in super. Fireblade it is such a shame that you have not had the opportunity to take professional advice on your family's insurance needs. It could have made such a difference to your current circumstances.
    To those advisers who have taken the time to provide some information to Fireblade - congratulations on your professional summaries as well as your correct 'promotion' of the value of advice. Our business specialises in providing good practical education and support tools to advisers who don't have this level of knowledge, so they can hone their advice skills. It's nice to hear such sensible information being put out there...and for no reward except to hope that someone else might benefit before it is too late for them. And we all need to challenge the average Aussie, too, to stop thinking "it'll be alright" (as Dan rightly says). So many times, it ISN'T alright and so much could be better if we all had a better focus on what can go wrong in life.
     
  14. Damaged

    Damaged New Member

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    TPD payout

    Hi
    I was made TPD by my GP and my surgeon in regards to 5 spinal operations finally getting the better of me.I have been fused from s1 to L4 and had C1 & C2 replaced.It has been 15 months since i have been terminated and placed on workers comp by my employer.I have obtained two doctor reports stating im unfit for any duties.I was sent to my insurers doctor for a medical examination which ive been told it came back advised to settle claim.The question im asking is what exactly does this mean does my super provider have any other ave when three doctors have come to the same conclusion.
    Thanks
    Damaged
     
    Last edited by a moderator: 9th Jan, 2011
  15. AsxBroker

    AsxBroker Well-Known Member

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    Hi Damaged,

    Total and Permanent Disablement in broad terms, means that you are no longer able to work due to injury or illness.

    TPD usually meets a Condition of Release of superannuation benefits and insurance (if any) which means that you might be able to access your benefits.

    You should speak to an FPA registerd Financial Planner to make sure you are maximising your benefits which you may receive.

    Cheers,

    Dan

    PS This is general information and you should speak to an FPA registerd Financial Planner to ensure you are receiving financial advice tailored to your situation and needs.