There has always been a slight mis-match between the TPD insurance options available inside and outside of superannuation. Within an SMSF you could take TPD insurance that had an 'own occupation' definition. However, under superannuation law a condition of release is only met if you satisfy an 'any occupation' definition, meaning that it was possible to have an insurance payout go into your SMSF but for it not to be eligible to be paid out. So while we might call this a 'slight' mis-match the ramifications can be serious.
From 1 July 2011 there will be another wrinkle in the own or any occupation definition distinction. Starting in the new financial year the premiums for TPD insurance will only be deductible inside superannuation to the extent that the benefit paid will meet the definition of a ‘disability superannuation benefit’. 'Own occupation’ policies may not be deductbile or at the very least they will only be partly deductible. This doesn't mean that holding 'own occupation' policies within super is no longer appropriate, but it does mean that you will need to decide whether to hold the policy outside of super (its not deductible there either) or perhaps adjust your contribution strategy to make up for the lost deduction if this interferes with your longer term plans.
