North Sydney Commercial Lawyers

‘Own occupation’ TPD access trapPrint This Post

‘Own occupation’ TPD access trap – Estate Planning Update – Summer 2013

For some types of insurance such as ‘own occupation’ TPD, there is a potential mismatch between the insurance policy definition (which determines when insurance proceeds are paid to the fund trustee) and the SIS definition of permanent incapacity.

If this type of insurance is held inside super it is quite possible that insurance proceeds could be paid to the fund but the client would be unable to satisfy a condition of release in order to receive a benefit immediately.

One way to avoid this trap is to structure ‘own occupation’ cover so that the part that is aligned with the permanent incapacity definition is held inside super and the remainder is held outside super.

Where the client has met the permanent incapacity condition of release, their superannuation benefits can be paid as a lump sum, pension or a combination (subject to the governing rules of the fund).

It should be noted that changes to SIS from 1 July 2014 will impact on the ability of super fund trustees to take out ‘own occupation’ TPD.