An insurance policy covering total and permanent disability (TPD) should normally be part of a suite of insurances we know as "life risk". They include income protection, trauma, life and, sometimes, business expense cover. All have different purposes and cover you for different events.

TPD offers a lump sum payment if you are deemed to have become totally and permanently disabled. The criteria are spelled out in the policy. 

Protecting your assets and generating long-term wealth is the focus of a self-managed super fund. That is why comprehensive insurance policies are in place to protect against a personal disaster. Most policies include the three areas of life, total and permanent disability (TPD) and trauma. 

To many times I come across clients who either have income protection policies established on an indemnity basis or established as agreed value without financial evidence being supplied to the insurer to financially endorse the contract. 

Whilst this is not a specific issue for trustees of SMSF’s, however, if you are a business owner with TPD or trauma cover in place for the purpose of debt reduction or have third party owned insurance you may wish to read on. 

It was a generally held view that premiums paid for TPD policies via a super fund were a fully deductible expense to the fund. This was up to 2008 when the ATO challenged this position.

The ATO draft ruling TR 2010/D9 outlined their view that full deductibility of TPD premiums should only be available if the TPD policy definition was consistent with the definition of the 'disability superannuation benefit'.  

Do you realise that you can greatly alter the after tax income stream payable to your family in the event of your death. The majority of clients we see simply leave their superannuation assets in the event of their death as a lump sum nomination to their spouse. Apart from the lack of certainty this strategy provides to ensure these proceeds are retained for the future benefit of the family blood line, this also means that any income generated from this lump sum is tax in the hands of the spouse only.