How super insurance payouts are taxed
Death benefits to a spouse or dependent child are tax-free; to an adult child who isn't financially dependent they can lose up to 32%. TPD lump sums are taxed on a sliding scale that depends on your eligible service date. Income protection is taxed as ordinary income. You can't claim a deduction for premiums paid in super.
The cover amount on your statement isn't what lands in the bank account. The tax depends on the type of cover and who receives it.
Death benefits
To a spouse, a child under 18, or someone financially dependent on you: tax-free.
To anyone else, such as an adult child who's independent or a sibling: the taxable part is taxed at up to 15% plus Medicare, and the part funded by insurance, which the fund hasn't already taxed, at up to 30% plus Medicare. In our calculation that comes to about 25% to 32% in all, depending on your eligible service date.
This is why nominating the right person matters. A $500,000 payout to an independent adult child could lose around $125,000 to $160,000.
TPD payouts
TPD paid through super is a disability super benefit. It's taxed on a sliding scale:
- Part of it is tax-free, through an uplift for the years between now and age 65.
- The remainder is taxed at up to 22%, including Medicare, if you're under 60. From 60, it's tax-free.
How much is tax-free depends on your eligible service date: roughly, how long you've been a super member. The longer, the less tax-free, because the uplift shrinks. For a $500,000 TPD payout at age 40:
| Eligible service | Tax | You receive |
|---|---|---|
| Joined today (no rollover) | $0 | $500,000 |
| 5 years | about $18,000 | about $482,000 |
| 10 years | about $31,000 | about $469,000 |
| 20 years | about $49,000 | about $451,000 |
Those are estimates from the miadvice calculator on 2026-27 rates. Your own figure depends on your service date and age.
Why the service date can work in your favour
If you join a new fund and roll nothing in from your old one, your service date is the day you join, which makes more of any TPD payout tax-free. If you roll your old super in, your service date usually carries over from the old fund. That's one reason a consolidation can quietly increase the tax on a future TPD payout, and a reason to check the date on your statement before you move money.
It cuts the other way for death benefits to non-dependants, where a recent service date means more tax, not less.
Income protection
Monthly benefits are taxed as income at your marginal rate. If you hold income protection outside super, the premiums are generally tax-deductible for that reason. Premiums paid inside super aren't deductible to you, though the fund can claim a deduction on its side, which is why many funds pass on a 15% saving.
What to do with this
- Find your eligible service date on your super statement.
- Check who your death benefit is nominated to, and whether they're a dependant for tax.
- When you compare cover, compare after-tax payouts too. The calculators here have a switch to show them.
This is general information about tax, not tax advice. Rules differ for older members, and for different types of beneficiary.
Sources
- ATO, Tax on super benefits and insurance payouts
- Income Tax Assessment Act 1997 ss 307-145 (disability super benefit uplift) and 307-290 (death benefit untaxed element)
- Figures from the miadvice needs analysis, 2026-27 tax rates, 2% Medicare levy
Show payouts after tax
Free, no sign-up. Uses each fund's published rates and rules.
General information only, not personal advice. Fund rules and premiums change, usually on 1 July or 1 October. Check the fund's current insurance guide before relying on a figure here.