Disclaimer – This article provides general information and education only. It is not financial or legal advice. The final amount you receive depends on your personal circumstances, policy type, tax treatment, and any offsets or deductions applied. Always seek personalised guidance from a financial adviser, accountant, or superannuation/insurance-claims lawyer.
It feels exciting when you win your Total and Permanent Disability (TPD) insurance claim. The number is big on paper.
But the question that many of our clients ask us most frequently is:
“How much will I actually get in my hand?”
The truth is: it can be substantially lower.
The gross TPD amount in your super policy is not your cash balance.
The final amount you receive will usually be reduced by fees and deductions, including:
- Tax
- Lawyer’s costs
- Government refunds
- Super fund offsets
This guide outlines the key deductions that are likely to apply and how much each can cost so you can plan ahead.
What determines your final TPD payout?
The below factors influence how much is left to withdraw:
- Whether your TPD cover is inside super or outside super
- Your age at withdrawal: preservation age (55–60) and over 60
- Whether you take it as a lump sum or income stream
- The cost of legal fees if you dispute the claim
- Government deductions, e.g. Centrelink recoveries, Medicare refunds
- Deductions for unpaid debts or insurance premiums
Step 1: Tax on TPD payouts
Inside superannuation
Most Australians have TPD cover in super. If successful, your fund will:
- Credit the payout to your super account.
- You choose to withdraw as a lump sum or income stream.
Tax treatment on lump sum withdrawals:
| Age | Tax-free component | Taxable component |
|---|---|---|
| Under preservation age (usually 55–60) | 0% | 22% (incl. Medicare levy) |
| Preservation age to 60 | 0% | First $235,000* tax-free, balance 17% |
| Age 60+ | Entire withdrawal tax-free | – |
*Low rate cap for 2023–24, indexed annually.
➡ Example: John, 45, wins a $400,000 TPD payout
- $100,000 is tax-free component, $300,000 taxable
- Withdrawal as a lump sum under preservation age
- $66,000 tax is deducted
- Net payout: $334,000
Outside superannuation
If your TPD insurance policy is outside super (a retail/life insurance policy you pay for directly):
- Your fund/insurer will pay you the lump sum directly.
- The payout is tax-free.
Step 2: Legal fees
Many claimants use a lawyer to lodge or dispute a TPD claim. Lawyers generally work on a “no win, no fee” basis but charge deductions if successful:
- Fixed fee or percentage – some lawyers charge a capped percentage of the TPD payout (e.g. 15–25%)
- Hourly rate/costs agreements – others use detailed billing (subject to legal hourly rate caps in your state)
- Disbursements – costs for medical reports, filing fees, independent assessments
➡ Example: Sarah, 52, wins $350,000 after a 14-month dispute
- Lawyer’s capped fee: $55,000
- Net payout after legal fees = $295,000 (before tax)
Step 3: Government refunds & deductions
Centrelink recoveries
- If you received Centrelink benefits (DSP, Carer’s, etc.) in the period your TPD payout covers, Centrelink may attempt to recoup part of the lump sum via “compensation recovery rules.”
- This does not happen in every case – it depends how your benefit was assessed/paid.
- Refunds are usually taken directly from your payout before it reaches you.
Medicare refunds
- If you are repaid medical costs that were previously covered by Medicare, then part of the TPD payout is refunded to Medicare.
- A Medicare Notice of Charge is used to determine if this applies.
Super fund deductions
- Your fund may deduct unpaid insurance premiums from your balance before a TPD payout is released.
- Advice fees (if your fund hires their in-house adviser) can also apply.
➡ Example: Ahmed, 39, wins a $250,000 TPD payout
- Fund deducts $8,000 for back premiums and admin fees
- Centrelink recovers $12,000 for overlapping DSP benefits
- Final net balance = $230,000 (before tax)
Step 4: Other potential reductions
- Debts or offsets against your fund or trustee – e.g. if you borrowed from super
- Offsets under policy wording – e.g. some policies reduce payouts if you already received other benefits (rare, but worth checking)
- TPD and death cover linkage – some funds “link” your TPD and death cover, reducing your life cover balance if you claim TPD now
Step 5: Putting it all together – worked examples
Example A – Younger claimant, super-based policy
- TPD entitlement: $400,000
- Legal fees: $50,000
- Super deductions (premiums/admin): $5,000
- Tax: $66,000 (under preservation age)
- Final net payout = $279,000
Example B – Over 60, no legal dispute
- TPD entitlement: $300,000
- No legal fees (claim uncontested)
- Tax = Nil (age 60+)
- Final net payout = $300,000
Example C – Disputed claim, Centrelink refund
- TPD entitlement: $500,000
- Legal fees: $70,000
- Centrelink recovery: $15,000
- Tax: $68,000
- Final net payout = $347,000
Pitfalls to avoid
- Ignoring tax – assuming payouts are tax-free. Inside super, they usually aren’t.
- Forgetting legal fees – if you used a lawyer, ask what fees will be deducted.
- Not disclosing government benefits – not reporting Centrelink/Medicare history leads to overpayment debts/delays.
- Assuming insured amount = cash in hand – gross policy figure is reduced by multiple deductions.
How to maximise your final payout
- ✅ Ask your super fund for a component breakdown (tax-free/taxable)
- ✅ Confirm with your lawyer what fees will be deducted
- ✅ Disclose your Centrelink/Medicare history early
- ✅ Seek financial advice before choosing lump sum vs income stream
- ✅ Consider tax planning – e.g. delaying withdrawal can reduce tax
FAQs
Are all TPD payouts taxed?
No. Payouts outside super are tax-free. Inside super, tax applies depending on age and components.
Do legal fees come before or after tax?
They’re deducted from the gross amount, then tax is calculated on what you withdraw.
Can Centrelink take my whole payout?
Unlikely, but they may claw back some, depending on the benefit you received.
Can I minimise tax on my payout?
Yes. Withdrawal timing, income streams, or delaying withdrawal can reduce tax.
Will my life insurance be reduced if I claim TPD?
Yes, if “linked.” Ask your fund how claiming TPD affects your death cover.
Key takeaways
- Your policy amount is not your net payout.
- Deductions include tax, legal fees, Centrelink/Medicare refunds, and super premiums.
- Claimants under preservation age usually pay the most tax.
- Lawyers/advisers can help maximise your net payout despite fees.
- Always plan for the after-deductions figure, not just the insured amount.
TPD insurance payouts are a critical lifeline for many claimants. But the amount you eventually take home is usually lower than the advertised figure in your policy or super account.
Being aware of likely fees and deductions helps you budget for the future more realistically and avoid nasty surprises.
At TPD Claims Lawyers, we not only fight hard to win our clients’ claims but also explain exactly how much they can expect to receive after legal fees, tax, and other deductions.
Get in touch for a free, no-obligation consultation so we can calculate the real amount you’re likely to receive.
Last updated: 4 September 2025