Disability Insurance

Disability insurance pays you a lump sum or monthly benefit if you get badly injured or sick — compare your options.

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Disability insurance can be broken into three types: total and permanent disability insurance, critical illness insurance and disability income insurance. All provide valuable financial assistance either in the form of a lump sum or monthly benefit payment. That way, you and your family don't need to worry about the financial implications, should something bad happen.

Three main types of disability insurance cover

There are three types of commonly purchased disability insurance in Australia. These include:

1. Total and permanent disability insurance2. Disability income insurance3. Critical Illness Insurance

1. Total and permanent disability insurance

Total and permanent disability cover, also known as TPD insurance, offers coverage in the event of a total and permanent disability, as a result of a serious illness or injury, and you are unlikely to return to work ever again. In order for a TPD claim to be successful, it is important to meet the definition of a total and permanent disablement, as it often differs from one provider to another.

You can use the lump sum benefit to cover any expenses that you see fit. As you are no longer able to work, TPD insurance can be utilised as a replacement of your income and cover the costs of medical care, ongoing rehabilitation, equipment, therapy, nursing care and home or vehicle modification, which often arise from having a permanent disability.

If you have an existing disability income insurance policy, TPD insurance can also be used as additional financial support. If you suffer from a disability that is deemed total and permanent, you will be eligible for a lump sum permanent disability benefit, on top other benefit payments you opt for. The total and permanent disability rider through income protection is only available through select providers, such as CommInsure and AIA.

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2. Disability income insurance

Disability income insurance is also known as income protection in Australia and it is designed to replace your lost income when you have to take time off work due to an illness or injury. Disability income cover will provide monthly benefit payments of up to 75% of your regular income. For an additional cost, you can also opt for excess cover of up to 15% to be used as superannuation contribution, although this benefit may vary between providers.

With disability income insurance, you have the flexibility to tailor your insurance packed with benefits and features that are suitable for your needs. Income protection insurance can reimburse the cost of your rehabilitation and nursing care that may be required to assist your recovery. It can also provide additional benefits if a member of your family is required to take time off to care for you, while you are disabled. You read more about income protection here.

Read more about Disability Income Insurance

3. Critical illness insurance (trauma)

Critical illness cover offers financial protection in the event that you have been diagnosed with a life-threatening medical condition, as specified in your policy. Some of the common conditions that are covered by this insurance plan include:

  • Cancer
  • Heart attack
  • Open heart surgery
  • Stroke
  • Multiple sclerosis
  • Parkinson’s disease
  • Benign brain tumour
  • Motor neurone disease
  • Dementia
  • Alzheimer’s disease
  • Quadriplegia

A lump sum benefit will be payable to provide immediate relief to any financial obligations you have to meet, such as medical expenses, rehabilitation costs, and nursing care. With trauma cover in place, there is no rush for you return to work and no financial worry as how you can keep up with your daily living expenses and pay off your debts.

Combined life and disability insurance

You have the option to bundle your disability cover – TPD and/or trauma, if you have an existing life insurance policy. It is more cost-effective and easier to manage with linked policies, in comparison to having them as separate plans.

How does it work?

As an example, you have a life cover policy linked with TPD cover. The sum insured is $500,000 for life cover and $200,000 for TPD. In the event of a successful TPD claim, you will receive a lump sum benefit of $200,000 and as a result, your life cover amount will be reduced to $300,000.

Buy-back feature with linked life and disability cover

What if the insured amount of your life cover is not sufficient to cover your family’s needs, when reduced by a disability insurance claim? Some Australian insurance providers offer an optional buy back feature that you can add onto your cover for an additional cost. This feature enables you to re-purchase the reduced life cover amount following a claim for disability benefit. In general, the buy-back feature must be exercised within 30 days from the disability claim anniversary (one year after the claim was made).

Why should I consider disability insurance if I’m covered by worker’s compensation?

Do not disregard the benefits of having a disability insurance policy in place, even if you are protected under a worker’s compensation scheme. It is important to remember that worker’s compensation provides only the bare minimum coverage for accidents that occur at the workplace. What this means, if you are injured outside of work or contract a serious illness, you are not covered under worker’s compensation.

With recent changes in the legislation, further cuts have been introduced to the worker’s compensation benefit amount and period of cover to a maximum of 52 weeks. Tighter conditions and restrictions have also been applied to claims eligibility, making it harder to access the worker’s compensation benefits. So even if you have been injured at work, there is no guarantee that you will receive a benefit payment and if you do, it is often not enough to ensure you are able to meet all of your financial obligations.

With a disability insurance policy in place, you can rest assured that you will be financially protected in the event of a temporary or permanent disability, no matter how and where you acquired it.

I have health cover, should I still consider a disability insurance plan?

If you have Medicare and private health insurance, consider the additional expenses that may arise as a result of your disability. They often fall outside the scope of health insurance and you will have to pay for these expenses out of your own pocket.

Depending on the severity of your disability, it may take months or years until you recover back to full health. With no other means to replace your income while you are taking time off work, will your savings be enough to cover your living expenses and ongoing rehabilitation costs?

Medicare and private health insurance can cover some of the costs of your medical care and hospital stays. However, they cannot provide the support you need in meeting your financial obligations. Disability insurance can offer you peace of mind that if anything should happen to you, you won’t have to worry about your finances. Read finder's full guide to see the complete differences between disability cover and health insurance.

What's the difference between trauma cover and health insurance

Is disability cover the same as the National Disability Insurance Scheme (NDIS)?

NDIS, now known as DisabilityCare Australia, is the Government’s newly improved disability support system that will be fully launched by July 2019. This scheme has been developed to replace the current disability support system that has failed to address the fundamental and urgent needs of many Australians with disability, their families and carers.

With NDIS, the Government aims to provide high quality care and support to people with disability, and improve their level of participation in the economic, social and cultural aspect of the nation. This scheme will be implemented following the model of Australia’s public health system, Medicare.

DisabilityCare should not be considered as a replacement for disability insurance. While the scope of cover may sound similar, DisabilityCare is designed to provide support for people who have ongoing and significant disabilities; often many of those are disabled since birth. Certain restrictions are put in place to ensure that those who are eligible can access the care and assistance they need.

With disability insurance, you will be eligible for a payout even if your disability is temporary. You are also able to use the benefit payment in any way you see fit to maintain your family’s lifestyle and meet your everyday needs.

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