How are TPD insurance payouts taxed?

Tax on TPD payouts varies significantly based on your age and whether the policy is inside or outside superannuation. For TPD insurance outside super, lump sum payouts are typically completely tax-free and not considered assessable income - a major advantage of standalone policies. For TPD insurance inside superannuation, taxation is more complex. If you're 60 years or older, both lump sum and income stream payments are generally tax-free. If you're under 60, the tax depends on the components of your super. There's a 'tax-free uplift' calculation where your future service period (from when you became disabled until age 65) is tax-free as a proportion of your total service period. The taxable component is taxed at 22% (including 2% Medicare levy) for those under preservation age. Between preservation age and 60, it's taxed at 17% including Medicare. The tax-free threshold applies, and the low-rate cap provides some relief. Critically, never consolidate super accounts before understanding tax implications, as this can significantly increase the tax you'll pay on a TPD claim.