Key Highlights

  • Death claims through super are admitted 98% of the time within a month.
  • Disability claims are admitted 88% of the time and take 3.9 months on average.
  • Complaints about refused claims rose sharply in the latest annual review.
  • A TPD lump sum paid from super is taxed under specific rules.

Insurance held inside super is meant to be a safety net for people who can never work again. But new regulator data shows total and permanent disability (TPD) claims are admitted far less often, and take far longer to decide, than death claims. With complaints about refused claims rising sharply, the figures are a timely reminder of how TPD cover works and how a payout is taxed.

What the new data shows

The Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC) published their latest Life insurance claims and disputes statistics on 16 October 2026.

The data covers the 12 months from 1 July 2025 to 30 June 2026 and 13 Australian life insurers writing direct business.

For group life insurance offered through super funds, the release showed, as summarised in industry analysis:

  • Death cover: an industry average claims admitted rate of 98%, with an average insurer claim time of one month.
  • TPD cover: an industry average claims admitted rate of 88%, with an average insurer claim processing time of 3.9 months.

Put simply, roughly 12 in every 100 finalised TPD claims through super were not admitted, and a typical TPD decision took close to four times as long as a death claim. The figures are industry averages, and individual insurers can sit well above or below them.

Not admitted is not the same as declined

The 12% gap should be read carefully. A claim that is not admitted is not necessarily a claim the insurer rejected.

In APRA's statistics, finalised claims can be admitted, declined or withdrawn. Some claimants withdraw, for example because they return to work, cannot provide medical evidence, or pursue another avenue. So the declined rate for TPD is likely to be lower than 12%, although it is still well above the rate for death cover.

The longer timeframe also has an obvious explanation. A death claim usually turns on a death certificate. A TPD claim requires evidence that the person is unlikely ever to work again, which can involve medical reports, work history and occupational assessments.

Complaints are climbing

The data arrives as disputes over refused claims rise. The Australian Financial Complaints Authority (AFCA) reported in its 2025–26 annual review that complaints about Superannuation rose 42% to 8,755, and that complaints about refused claims jumped 80%.

Not all of those complaints relate to TPD, but Insurance Claims are a major source of super disputes. Members who disagree with an insurer or Trustee decision can complain to their fund first and then to AFCA, which is free to use.

ASIC also publishes a consumer-friendly version of the claims data on its Moneysmart website, which allows comparisons of insurers by acceptance rates, claim times, disputes and cancellation rates.

For claimants, the wait matters. Someone who has stopped work because of illness or injury may be relying on savings, sick leave or income protection while a TPD claim is assessed, and a delay of several months can add real financial pressure.

How a TPD payout from super is taxed

With insurance held through super, the insurer generally pays the benefit to the fund. The trustee then releases it to the member once a condition of release, such as permanent incapacity, is met. The insurer's TPD definition and the super release test are separate, so it is worth understanding both.

A TPD benefit paid through super is generally treated by the ATO as a "disability super benefit". To get the concessional tax treatment, the ATO says "you must be certified by at least 2 medical practitioners" as unlikely ever to work in a Job you are reasonably qualified for by education, Training or experience.

The benefit can be paid as a lump sum or as an income stream, and the tax differs:

  • Lump sums get a boost to the tax-free component. The ATO says that for a disability lump sum, the tax-free component is increased using a formula: the benefit multiplied by days to retirement, divided by service days plus days to retirement. Retirement is generally taken as age 65. The younger the member, the bigger the tax-free share.
  • Under preservation age (now 60), the remaining taxed element of a lump sum is taxed at the member's marginal rate or 22%, whichever is lower, including the Medicare levy, according to the ATO.
  • Aged 60 or over, a lump sum from a taxed fund is generally tax-free.
  • Under preservation age, a disability income stream is taxed at marginal rates, but the ATO says members are entitled to a tax offset equal to 15% of the taxed element.

Hypothetical example: a TPD lump sum at 45

Hypothetical example: Sam is 45 and is certified by two doctors as permanently unable to work. His super fund pays a $300,000 TPD lump sum, including the insurance proceeds. Assume his service period began at age 25 and he has no existing tax-free component.

Days to retirement (age 45 to 65) and service days (age 25 to 45) are each about 20 years, so the formula treats roughly half the benefit as tax-free: $300,000 × 20 ÷ (20 + 20) = $150,000.

The other $150,000 is taxable. Taxed at no more than 22%, including the Medicare levy, the tax would be at most $33,000 ($150,000 × 0.22), leaving at least $267,000.

The figures are illustrative only. Real calculations use exact day counts, and existing tax-free amounts and untaxed elements change the result.

What to watch: key dates

  • April 2027: APRA's next release of life insurance claims and disputes statistics, covering the year to December 2026.
  • Ongoing: whether TPD admitted rates and processing times improve, and whether AFCA's refused-claim complaints keep rising in 2026–27.
  • Each tax return: TPD lump sums and disability income streams must be reported using the payment summary from the fund.
  • 1 July 2027: the lowest personal tax rate falls from 15% to 14%, under enacted law, which flows through to marginal rates on taxable disability income streams.