TPD in Super: What's It Good For? A Fit-for-Purpose Check

TPD Cover in Superannuation - part one of a two-part series.

Background

Total and Permanent Disablement (TPD) cover has been provided through group insurance in superannuation for many decades as a default disability benefit to fund members, often alongside Income Protection cover (IP). In recent years, in many funds, TPD cover is the primary default disability insurance cover.

TPD cover provides financial assistance for members facing:

early involuntary retirement from the workforce due to injury or illness; or
disrupted work patterns in cases where a member is unlikely to be able to continue working in an occupation for which they are suited.

However, changing social attitudes, population health trends, including in mental health, evolving consumer expectations and a shifting regulatory landscape have reduced the suitability of current TPD product designs. This is compounded by complex and non-standardised definitions, lengthy claims processes, subjective assessment of permanency and inconsistent return-to-work outcomes. These factors can undermine member experience and place upward pressure on premiums. TPD premiums are generally increasing but not for all funds, while the proportion of claims relating to mental illness has increased in recent years. Mental health related TPD claims payouts (superannuation and non-superannuation) reached $2.2 billion in 2024^[1], almost double the amount paid five years prior.

The Actuaries Institute Public Policy Statement 7 b and c^[2] states:

“…. the Institute supports death and disability default designs that target the financial loss of the member (indemnity cover)... IP cover is designed specifically as indemnity cover for disability as it replaces a proportion of the member’s lost income. For this reason, the Institute supports IP as the primary disability benefit provided by trustees…”

This does not preclude TPD cover as a potential component of the default disability benefit design, for example meeting the costs of changing occupation or immediate medical and rehabilitation expenses.

Over recent years, most funds that do not provide a salary-based sum insured have reduced default TPD cover (directly or through the loss of real value with time by not updating the dollar level of cover to reflect inflation or wage growth rates). This applies similarly to IP cover.

Section 68AA of the Superannuation Industry (Supervision) Act 1993 (SIS) requires trustees to ensure funds provide a death and a permanent incapacity benefit to MySuper members (subject to some conditions). This requirement can be met with life insurance products other than the traditional TPD product, for example, TPD by instalment or IP. Nevertheless, most funds meet this obligation by providing a TPD product, thinking perhaps this is the only option available.

In this two-part series, the Insurance in Super Sub-Committee (ISSC) examines the key issues limiting the effectiveness and suitability of current TPD arrangements and summarises proposals aimed at ensuring products remain fit for purpose.

The first article:

explores the importance of a clearly defined TPD objective;
reviews current superannuation fund offerings;
summarises key issues from the perspectives of the various stakeholders; and
discusses the complexity created by mixed TPD definitions and components across the market.

The second article considers alternative member-centric designs, potential pricing impacts and key considerations for trustees.

What Is TPD Cover Actually Meant to Achieve?

Current TPD objectives

The starting point for the sound design of TPD should be a meaningful statement by the trustee of the objective or purpose of the cover. Given TPD has become the primary (and often the only) default disability insurance benefit for many members, it is important that trustees are clear about what the cover is intended to achieve. The TPD objective should help the member to understand:

why the benefit is provided both as a default benefit and as opt-in voluntary cover;
why the level of default cover has been set at the level provided; and
how the TPD benefit integrates with the other disability benefits offered by the fund (for example, IP, if offered as default or opt-in cover).

Many superannuation funds do not state an objective and many are vague. We have captured in the table below the stated purpose of providing TPD cover for a sample of funds that do provide an objective. We have also included the objective enunciated by of the regulator, Australian Securities and Investment Commission (ASIC) and by two group life insurers.

Source	Purpose
ASIC (REP633)	The purpose of TPD is to provide financial assistance to consumers experiencing a severe and ongoing medical condition which renders them unlikely to work again. Its purpose is to replace future retirement savings lost due to disablement. A TPD benefit can also help with the costs of rehabilitation, debt repayments and future costs of living.
ART Super Savings TPD Assist^[i]	The intention of Total & Permanent Disability Assist insurance cover is to provide support payments to you should you suffer an injury or sickness that permanently prevents you from working to retirement age. Total & Permanent Disability Assist insurance cover is available to you regardless of your working hours or the basis on which you are employed. Regardless of your employment type, you will be provided with Standard cover when you are eligible after joining Australian Retirement Trust. We believe in supporting you when you are first unable to work due to injury or sickness by offering an early intervention program to assist you back into the workforce. Where you remain unable to return to work, we will help you achieve a suitable and safe return to work through occupational rehabilitation (provided through the Fund insurer), where applicable.
ART QSuper^[ii]	Total and permanent disability (TPD) insurance pays you a lump sum if you are unlikely to ever be able to work again due to illness or injury. This may help you to take care of yourself and your loved ones, as well as help with any ongoing medical costs.
Aware Super^[iii]	If you become totally and permanently disabled, you may not ever be able to work again. Having the right insurance can help replace your current and future income. This can help pay for general living expenses and medical treatments.
Australian Super^[iv]	TPD cover can pay you a lump sum benefit payment if you become totally and permanently disabled and can no longer work. A lump sum can help cover the costs of rehabilitation, debt repayments and the future cost of living.
Cbus^[v]	Total and permanent disablement (TPD) cover provides a safety net in the form of a lump sum payment for eligible members whose working life is cut short by injury or illness.
Hostplus^[vi]	The intention of Total and Permanent Disability cover is to provide you with an insured benefit if you become totally and permanently disabled as a result of an illness or injury. It is designed to replace your future earning capacity via a lump sum payment and provide you and your dependants with the financial support you need.
Rest Super^[vii]	Our TPD Insurance aims to protect you by providing you with a lump sum payment which allows you to continue to pay living expenses and debts when faced with a serious permanent disability.
TAL^[viii]	TPD insurance, or Total and Permanent Disability insurance, is a type of insurance policy that provides you with financial coverage in case you become totally and permanently disabled and can no longer work. Its primary purpose is to provide financial protection and support during unexpected times of disability, ensuring that you can cover medical expenses, ongoing care costs, and other financial obligations that may arise due to the disability.
Zurich^[ix]	The purpose of both TPD and Income Protection is to replace customers' short and long-term income whilst being able to focus on their health journey and adjust to the changing circumstances they face.

Key observations

No uniform purpose: The stated purpose of TPD varies markedly between funds, insurers and ASIC.
A myriad of financial purposes, including replacing or helping to replace:
- Income- short and long-term income; future earning capacity; current and future income.
- Superannuation contributions - future retirement savings.
- Future expenses - medical expenses, ongoing care costs, and other financial obligations that may arise due to the disability; living expenses and debts; rehabilitation, debt repayments and the future cost of living; pay for general living expenses and medical treatments; to take care of yourself and your loved ones, help with any ongoing medical costs.
Lump sum versus income: Most purpose statements mention replacement of lost income, meeting future living or other expenses. Although these are more in the nature of income streams than lump sums, no rationale is provided for the benefit being provided in the form of a lump sum.
Language varies widely: The stated purpose ranges from certainty (“will provide”) to aspiration (“aims to help”), creating ambiguity.
Retirement savings – In or Out? Only ASIC states that TPD is intended to replace future lost retirement savings (noting ASIC doesn’t explicitly see it replacing working income).

The absence of a clear, consistent purpose for TPD cover across funds, insurers and the regulator is concerning. In particular, it creates confusion and undermines member understanding.

None of the funds set out why default TPD cover is provided at a particular level or how this level was determined.

Defining the Disability Benefit Objective and TPD’s Role

Considerations for a good practice objective for TPD may cover:

How the TPD benefit forms part of an overall disability benefit design, including return to work strategies.
The financial loss the benefit is intended to cover, including the interaction with the Fund’s IP design, where applicable. This should specify whether the target financial loss is:
- (a) an income-related loss (foregone salary/wages and associated Superannuation Guarantee (SG) contributions) and the assumed salary of members where a salary-based benefit is not provided, and/or
- (b) longer-term capital needs (additional medical and care costs, retraining and reskilling costs).
The circumstances when a benefit is triggered. This includes, for example, how the severity and expected permanency required to trigger a benefit.
The trustee’s rationale for the default benefits provided under a range of other possible risk events not covered by the chosen TPD design. For example, if the member suffers a disability that prevents them from working in the short/long term but does not meet the fund’s definition of “permanent”, the trustee should clearly state whether financial support is intended to be delivered through default IP (if offered) and, if not, the basis on which the trustee considers members, in general, will sufficiently meet living costs, for example, through opt-in IP or other insurance, or government benefits in conjunction with personal savings. Any material coverage gaps should be explicitly acknowledged.
All member cohorts, including the default member cohort. In particular, where different cohorts are subject to different definitions, terms or conditions, the trustee should consider and document the objectives separately for each cohort.
The advantages and disadvantages of adopting a consistent set of definitions and terms across all member cohorts and the trustee’s rationale to adopt a single approach or cohort-specific definitions.
The need for simplicity, making it easier for members to understand and engage with the design and the options available to them. It can also assist trustees in administering the benefit designs more efficiently.
The need for the objective, the definition of disability and the claims assessment criteria process to be aligned, so the benefit members expect based on the stated objective is the benefit that can be assessed and paid in practice. For example, ASIC has described one objective of TPD in its report REP633 ^[3] as: “The purpose of TPD is to provide financial assistance to consumers experiencing a severe and ongoing medical condition which renders them unlikely to work again. Its purpose is to replace future retirement savings lost due to disablement. A TPD benefit can also help with the costs of rehabilitation, debt repayments and future costs of living.”

Having determined the objective of the fund’s TPD cover, the trustee may then determine:

The TPD design that meets the stated objective(s). This is only possible where the objective has sufficient detail and specificity.
The level of default cover and the rationale for it, including circumstances in which default cover:
- may not adequately address a member’s financial risk, when members may need to consider additional cover or other sources of support; or
- may overinsure the member and the member may need to consider reducing cover.

What's Driving the Problems With TPD Design Today?

The key issues facing TPD design are set out below. Many of these have been relevant for many decades, while some have become more relevant only in recent years.

Objective vs. Non-Objective Causes: A growing proportion of claims relates to conditions where objective diagnosis and functional capacity evidence can be difficult to determine (for example, mental health and chronic pain). These rely on subjective clinical opinions, leading to delays in claims processing and complaints and disputes for claimants.
Challenges in Determining Permanency: A long-standing issue with TPD is that the definition that applies to most members requires an assessment of whether someone is unlikely to ever work again in an occupation that is suitable to their education, training and experience (or words to that effect). This assessment is a probability estimate. Type one (claim declined when it should be accepted) and Type two (claim accepted when it should be declined) errors are an inherent outcome of the definition, particularly for non-objective claim causes. Type one errors may be challenged and corrected through the trustee and member review and complaints handling mechanisms. Type two errors are costly and result in higher premiums. A benefit that is hard to correctly assess may provide poor member outcomes.
Experts, including medical practitioners, are required to provide an opinion on a claimant’s capacity for work and/or provide an opinion as to whether the claimant meets the definition of TPD. This may be inconsistent with the main objective of medical treatment and supporting patients with their recovery goals.
The name of the benefit (total and permanent disablement) may encourage a fixed, permanent disablement mindset in the claimant rather than a recovery or return-to-work mindset.
There can be a misalignment in design between a TPD benefit which pays the member a one-off lump sum and an IP benefit with an ongoing income and return-to-work focus.
Lump-sum incentive effects: A single lump sum benefit can create incentives and behaviours that are not aligned to return-to-work objectives, with claimants potentially feeling financially incentivised to prove permanency of disablement to receive a benefit instead of focusing on their recovery. This increases friction in assessment and rehabilitation pathways. It is exacerbated when the sum insured is large.
Large sums insured - A flow on issue for large sums insured is whether underwriting requirements for these levels of cover are adequate to manage anti-selection and maintain fairness between cohorts within the fund.
Late claim lodgement: TPD often involves late-lodged claims, which require retrospective claims assessments and evidence collection. It also makes estimation of the underlying risk and liability for insurers and funds more difficult. Further, the reporting patterns for claims can be unstable, resulting at times in unreliable actuarial ultimate claims cost estimates which flows through to pricing.
Design complexity and lack of standardisation: Wide variation and complex TPD design, definitions and processes across funds (see Attachment one) increases administrative burden and contributes to high legal involvement for TPD, with around 50% (varies by fund) supported by legal representatives.
Claims handling: Regulators have continued to raise concerns to super fund trustees and insurers on excessive delays in claims assessment and payment. There is pressure on claims assessors under the mandatory Life Code to make a decision within set timeframes.
Lawyer involvement - High levels of legal involvement reduce member outcomes as the lawyers are paid by the member. The involvement of lawyers, at least up to the complaints stage, should be unnecessary in a trustee system where the trustee has a legal obligation to pursue claims for members that have a reasonable prospect of success.

The key advantages of TPD are:

Extinguishes the liability and the need to manage the claim, both for the trustee and the insurer; and
May have tax advantages for the member, under some scenarios, most notably for high sums insured. There are also scenarios where there may be tax disadvantages.

Industry Participant Perspectives on TPD Issues

TPD design faces a complex landscape shaped by a long history and diverse stakeholder perspectives, including members, funds, insurers, reinsurers, and regulators. The key issues are mapped to the stakeholders in the table below. To address these issues, there is a need for simplified, member-centric product design that balances financial protection with retirement savings, incorporates anti-selection measures for sustainability and improves claims handling and transparency.

Issue	Insurers / Reinsurers	Super Funds	Regulators	Members
Rising Claim Rates	Profitability risk Concern about long-term sustainability and anti-selection Pressure to tighten underwriting and claim eligibility rules	Retirement income impact Increased premiums relative to other funds	Monitor solvency and risk management Members’ Best Financial Interests concerns	Default insurance regime and the lack of interest generally in retirement and superannuation means members have very low elasticity of demand However, members seeking large cover levels may shop around between funds if rates start to diverge Possibility of reduced benefits or stricter cover and claim eligibility Higher premiums
Objective vs non-Objective claim causes	Challenges in assessing claims where objective medical diagnosis is difficult, such as mental illness and back pain Potential for rising claim costs and unexpected increases in claim volumes as non-objective claims increase	Ensure members are treated fairly and not subjected to unreasonable requests for repetitive evidence Ensure timely decisions for claimants Ensuring the insurer does not use a lack of objective data to unfairly decline a claim or incorrectly accept claims (which will lead to higher premiums)	Do not distinguish between claims causes type but recognise non-objective claims are more difficult to assess Policy definitions are being fit for purpose Fair and efficient claims handlings	Expectation of coverage even if condition is objective or non-objective
Determining “permanency” of the inability to return to work in the same or a similar occupation	Difficultly in determining permanency, leading to payment of claims to some members who may eventually return to work in the same or a similar occupation Concern about weakening of TPD severity and permanence thresholds over time Resulting rising claim costs challenging profitability and sustainability	Various different views Paying permanent disability claims only Pursuing claims that have a reasonable prospect of success Timely and fair claim resolutions	The definition should be clear, fair and consistently applied Focus on consumer outcomes, consistency and appropriate claims handling rather than requiring certainty that a claimant will never work again	Expectation of coverage in some cases, especially where a disability has been paid through another one of the disability support benefits available in Australia
Legal Involvement	Higher litigation cost Compliance burden Exposure to disputes and delayed settlements Legal strategies for claimants to obtain benefits puts pressure on pricing	Operational complexity Unnecessary price increases	Legislation requires timely claims handling and transparency	Frustration with delays and legal disputes Reduced benefit payout to cover legal fees (material proportion)
Regulatory Pressure	Compliance burden Exposure to disputes and delayed settlements Insurance Code obligations	Operational complexity Risk of penalties for delays	Demand timely claims handling and transparency	Should ensure a better design and outcome overall for members
Complex Product Design & Definitions	Weakening and interpretation of definition by courts Misalignment of name of product versus definitions Risk of disputes Push for modernised design and definitions to manage risk	Difficulty explaining coverage and compare TPD design Reputational risk Complexity in administration	Pressure for cohort fairness	Confusion about coverage Difficult to compare the TPD design Dissatisfaction with unclear terms
Lack of Standardisation / application Across Funds	Harder to manage risk consistently Increased complexity in pricing and pooling risk	Administrative burden Inconsistent member experience	Encourage clearer, fairer and more comparable practices across the industry	Perception of unfairness Inconsistent outcomes
Member Experience Challenges	Complaints damage brand Pressure to improve claims handling; Concern about reputational impact on industry	Increased complexity of operational administration Reputational risk	Push for better disclosure and engagement	Poor engagement and awareness; Frustration with delays and disputes
Data Limitations	Hinders pricing accuracy and product innovation Limit ability to model risk effectively	Lack of insights for member engagement and product design	Concern about transparency and reporting standards	Indirect impact—less tailored products and slower improvements
Cost Pressures	Need to balance sustainability with competitiveness Pressure to maintain affordability	Higher premiums may affect member retention	Monitor affordability and fairness	Concerns that rising premiums reduce retirement savings

Across stakeholders, there is broad agreement on the “what” (complexity, delays, rising costs) but not always on the “why” or the preferred solution. Clarifying objectives up-front helps trustees navigate these trade-offs transparently and align design, definitions, and claims practices to intended member outcomes.

Conclusion

TPD within superannuation can serve an important role as a financial safety net for members. However, its effectiveness is constrained by the absence of clearly articulated and consistently applied objectives. This increases the risk that product design, benefit structures and claims assessment frameworks become misaligned with member needs and expectations.

The review of objectives demonstrates significant variation in how TPD can apply, ranging from income replacement to expense coverage or broader financial support. At the same time, stakeholder product design decisions need to strike a balance between affordability, sustainability, fairness, and member outcomes. These differing views directly shape product features, pricing, claims experience, and member trust in the system.

Establishing a well-defined objective is a first step for resolving issues observed across the industry. It provides the basis for clearer communication, more consistent decision-making, and better alignment between benefits, definitions and objectives of the superannuation fund.

Building on this, Part Two will set out the some of the proposed potential pathways forward for trustees, focusing on alternative, member-centric design approaches and the key considerations for trustees in delivering more effective and sustainable TPD offerings.

^[1] https://cali.org.au/mental-ill-health-is-straining-australias-safety-net/ July 2025 CALI report

^[2] https://content.actuaries.asn.au/resources/resource-ce6yyqn64sx3-2093352434-60254

^[3] ASIC Report “Holes in the safety net: A review of TPD insurance claims”, October 2019

^[i] ART Super Savings TPD Assist: Intention statements | Insurance | ART

^[ii] ART QSuper Total & permanent disability cover (TPD) | QSuper

^[iii] Aware Super Total and permanent disablement cover | Aware Super - Australian Superannuation Fund

^[iv] Australian Super Applying for a Total & Permanent Disablement payment

^[v] Cbus: Applying-For-TPD-Payment-Factsheet.pdf

^[vi] Hostplus Important information about insurance at Hostplus

^[vii] Rest Super Total And Permanent Disablement Cover - Insurance | Rest Super

^[viii] TAL TPD Insurance explained: top things you should know | TAL

^[ix] Zurich Total and Permanent Disability Insurance (TPD) | Zurich Australia