Many people that lodge a TPD claim don’t plan past the initial process of having their claim assessed. Once they receive their TPD payout, whether in a lump sum or as an income stream, it is critical that these funds be put to work, in an effective manner, to help ensure they can set you up for life.
Making sure your TPD payout can financially support you in the long term is the next best thing to do after getting your TPD claims approved. This article provides you with a step-by-step process of what you can do after getting your TPD benefit.
What happens after your TPD claim is approved: (6-step process)
Ensuring that you and your loved ones can maintain your lifestyle and standard of living, in the face of a catastrophic health event, is often the purpose of a Total and Permanent Disability benefit.
- Understanding your payout – TPD payouts are often paid through your Superannuation account, possibly giving you three options with what to do with your funds.
- Lump sum withdrawal – typically taxed at 22% (if below the preservation age)
- Income stream – taxed at marginal tax rate less a 15% tax offset (if below the preservation age)
- Leave it to grow – contributions in your super including your TPD payout can grow over time and make withdrawals in the future.
- Compute your TPD tax – tax can heavily impact how much you will receive from your TPD claim. Tax dues on TPD vary depending on your age, your withdrawal option, and your marginal tax rate.
- Allocating funds for your medical needs or living expenses – calculate your medical needs and living expenses to understand your future needs and insure yourself appropriately. These could contain the following:
- Medical expenses – medications, therapy, equipment, consultations, medical care
- Home modifications – for any modification or renovations at your home to support your medical condition
- Living expenses – ongoing household expenses like food, utility bills, transportation, mortgage
- Family financial support – budget for kid’s education or to cover your partner’s income while taking care of you
- Check your Centrelink entitlements and payments – having access to TPD payout may impact your Disability Support Pension (DSP). Check our article about TPD payout and disability pension to understand how your payout can affect your pension.
- Create a budget – considering all your sources for financial support will help you create an effective budget plan that allows you to cover all your medical needs and be able to support your family.
- Seek professional advice – if you want professional help on how you can utilise and maximise your TPD payout, work with a TPD claims expert such as Curo Financial. Our team provides expert TPD claim advice and can help you set up a plan to meet your goals even with your medical condition.
How your approved TPD claim is paid out
TPD is typically paid out in lump sum payments, though some policies may provide for periodic payments.
Whether you access your payout via a lump sum or income stream can have a significant impact on the tax you pay as well as welfare benefits you may be able to receive (such as Centrelink).
As a result, obtaining advice on the most effective way for you to access your payout can be invaluable.
Do I have to withdraw my entire balance now?
No, you typically don’t have to withdraw your balance immediately but you generally can if you want to.
You may want to consider whether you want to put some of your payout into an income stream.
An income stream can provide you with a regular income, which may be preferable if you are unable to return to work.
It is important to seek advice before making a decision on how to receive your payout, as there can be tax implications as well as implications for Centrelink benefits.
Does a TPD payout affect Centrelink?
Yes, it can – and in some cases, it may reduce the amount of Centrelink benefits you are eligible to receive.
For example, if you receive a lump sum TPD payout, this may reduce the amount of Disability Support Pension you can receive.
It is important to understand how the income and assets test will be applied to the proceeds you receive from a claim.
It is not the act of claiming your TPD insurance that may have an impact on your Centrelink benefits, it is where the money sits (inside/outside of super) once the payout is made that can impact your entitlements.
As a result, it is important to seek advice before making a decision on how to receive your payout.
Taxes on TPD claims
A TPD insurance policy held under the insured’s name and paid outside of super is normally tax-free. However, most TPD insurances are within Super which makes the withdrawal taxable. Continue reading below to know more about tax on TPD and how it affects your super and Centrelink payments.
Is a TPD payout considered taxable income?
TPD payouts are not considered to be taxable income. An individual will only owe income tax during income stream withdrawal from super.
Withdrawing your superannuation benefits as a lump sum can result in you being required to pay the Superannuation Lump Sum Withdrawal Tax.
How to calculate your TPD taxation payout
Calculating the exact amount of tax on TPD payout is quite complex. You need to know how much the taxable and tax-free components of your payout. The only way to access a precise calculation is by contacting your superfund and requesting that they provide you with this indication.
To help you, we have a free TPD Taxation Calculator that you can use to get an estimate of your tax dues. Please do not rely on this information and please contact your super fund as mentioned above.
How approved TPD claims affect your superannuation
Payouts from approved TPD claims will most likely, initially, be paid to your superannuation account which increases your overall super balance and becomes part of your savings.
Does Withdrawing from superannuation impact my Medicare Levy assessment?
Typically, withdrawing from superannuation doesn’t affect your Medicare Levy assessment. Levy is determined by the total taxable income of the individual and not the act of withdrawal. If you are under 60, your withdrawals above the “low rate cap” will be added to your taxable income which then affects your levy. If 60 and above, withdrawals are normally tax-free – unless in some cases, you need to pay your medicare levy surcharge.
Does Withdrawing from superannuation affect my Child Support payments?
Your Child Support payments may be affected if you receive a TPD payout.
This is because your taxable income may increase, which may result in you having to pay more Child Support. One key way in which your taxable income may be impacted are due to the ‘earnings’ you receive on the funds you withdraw such as interest or dividends.
If you are thinking of withdrawing your superannuation as a lump sum, you should seek advice on the potential impact this may have on your Child Support payments.
Want an expert to walk you through the TPD claims approval process?
The financial support that the TPD insurance can provide is highly beneficial to a person with a permanent disability. However, this can only be made possible once the TPD claims are approved.
While the process for TPD claims approval is simple, the work behind every stage of the process requires careful planning and execution.
Don’t let your TPD insurance go to waste. Work with Curo Financial to increase your chances of getting approved and being able to provide financial support to your family.
Frequently asked questions
What happens once TPD is approved?
Once your TPD claim is approved, you need to understand exactly what you will be receiving as well as the numerous ways in which you may be able to access your funds. Whether you opt to withdraw your funds from super, take an income stream or leave it to grow, there are pro’s and con’s to each decision and seeking advice is critically important.
How does TPD get paid out?
A TPD payout is often paid through your superannuation. From there, you have options on whether to access your funds through a lump sum withdrawal, income stream, or leave it there to grow. Working with a TPD claims expert like Curo can help you understand the tax implications of each option.
How much tax will I pay on my TPD claim?
Calculating the exact amount of tax on your TPD payout involves a lot of factors to consider. First, you should contact your super fund as they are the only organisation that can provide you with an accurate figure. Head over to our free TPD taxation calculator to get an estimate. But if you are above the preservation age, your withdrawals may be tax-exempt. Talk to us to make sure.
General Advice Disclaimer
General advice warning: The advice provided is general advice only and in preparing it we did not take into account your investment objectives, financial situation, or particular needs. Before making an investment decision on the basis of this advice, you should consider how appropriate the advice is to your particular investment needs, and objectives. You should also consider the relevant Product Disclosure Statement before making any decision relating to a financial product.
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