What is TPD Insurance?
Total and Permanent Disablement is a form of insurance cover that offers protection for people that become completely disabled and are unable to work. The benefit paid is in the form of a lump sum. This can be given to the policyholder and their family to offer support as they are unable to work to their full capacity. Definitions of Total and Permanent Disablement can vary between providers so it is essential to be clear on what definition your policy falls under.
So how much TPD insurance do I need?
As with Life Cover, determining how much TPD cover to take out requires a close assessment of your personal financial situation and how your life could be affected in the event of becoming totally and permanently disabled. A key step in this process is actually writing down or creating a spreadsheet of all of your current financial obligations and consider what costs may be incurred if your income stream was to be removed. There are self-assessment calculators available online that can assist with this process.
What type of costs do you need to consider?
- Rough cost of medical expenses
- Your outstanding debts
- Future obligations e.g. children's education
- Ongoing family costs
But I already have Life Cover, should I still consider TPD insurance cover?
While life cover can provide support in the event of the policyholders death or diagnosis of a terminal illness, what if the policyholder is to become disabled and not die? The impacts of suffering total disablement and not being able to work again can be truly devastating. TPD can help the insured keep on top of their current debt, living expenses into the future and any rehabilitation and ongoing treatment that they might require, the costs of which can easily run into the hundreds of thousands if not millions of dollars. Not having this cover in place can cause great financial strain on their surrounding family members and others they are close to.
Common costs that TPD can help cover
- Mortgage/rental repayments
- Personal debt i.e. credit card debt, car loan, personal loans
- Day to day living expenses
- Childrens education
- Professional nursing care
- Necessary modifications to home (addition of ramps, lift access, hand rails etc)
- Medical care
Different definitions of Total and Permanent Disablement
TPD policies generally come under two definitions. These are “own occupation” and “any occupation”.
Own Occupation: Benefit is payable if a certified doctor deems that it is unlikely for the policyholder to ever return to the occupation that they have been trained in.
Any Occupation: Benefit payable if policyholder is unable to perform the duties of their regular occupation and is unable to work in any other occupation that they may be suited to by education, training or further experience.
Can I purchase TPD Insurance through life cover?
Many life insurance companies now offer TPD feature within Life Cover policies. It is important for applicants to review the product disclosure statement before application to determine whether a life cover benefit will be paid if there has already been a claim for TPD. In some instances the benefit will not be paid or the policy will be cancelled.
To work around this many policies will offer Buy-Back feature which will reinstate the life cover that has been removed from the sum insured as the result of a TPD claim.
As an example if you had $500,000 worth of life cover and $250,000 in TPD if a claim is made the life cover sum-insured would reduce to $250,000 in a linked policy. A buy-back feature will “top-up” this amount to $500,000 after 12 months of the claim being made.
The benefit of bundling the two cover types together is that it can be more cost effective when it comes to paying premiums and also makes management of the two policies easier.
Taking out TPD Cover
There are many insurance providers in Australia offering TPD Insurance as both standalone policies and bundled with other life cover. It is essential for anyone looking to apply to consider their own situation to determine what option is most suitable and to identify what policy features/benefits could be worth considering for their situation. An insurance consultant can offer great assistance throughout this process by helping you determine the right amount of cover and explain the different aspects of the policies to you. Whats more they are able to compare hundreds of different policy options on offer, saving you both time and money. Once you have found a policy that you are happy with, a consultant will help you through the application process by ensuring all of the necessary paperwork is completed and delivered at the appropriate time.