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Total and Permanent Disability (TPD) Insurance
Total and permanent disability insurance (TPD) is type of cover that pays you a lump sum amount if you suffer a serious illness or injury that leaves you unable to work again.
What can the best TPD policy provide you?
Three key reasons why people opt for TPD cover include:
- Financial assistance for a range of expenses. Lump sum benefit can be used to cover your mortgage repayments, pay for medical expenses that have arisen as a result of your disability, and provide ongoing financial support for your family.
- Optional cover for specific occupations. Policies can offer you specific cover if you can no longer perform the duties of your regular job.
- Option to bundle with life insurance. TPD cover can be purchased as an add-on to life insurance cover or standalone policy.
What's in this guide?
How does total and permanent disability insurance work?
TPD is cover that's designed to protect you if a disability leaves you unable to work. Here's how it works:
1. What's considered a total and permanent disability
Common examples of total and permanent disability can include:
- Loss of sight
- Loss of hearing
- Loss use of limbs (arms or legs)
2. Situations when you are likely to receive a payout
A Total Permanent Disability (TPD) benefit is payable when:
- You become totally and permanently disabled due to either injury or illness
- You absent from work for a set amount of time
- A there is no expectation of you returning to normal work
- You meet all other criteria set out in your policy
3. Example of when a policy would payout
A permanent disability is defined differently by each insurer, but you usually need to meet the following criteria:
| Checklist for payout | Details |
|---|---|
| Minimum length of disability | 6 months due to an injury or illness |
| Rehabilitation | You'll need to seek a sufficient amount medical treatment and rehab for upwards of 6 months. |
| Medical certification provided to your insurer. | A least one medical practitioner certifies that you are totally and permanently disabled. Some insurers will also get a second opinion from their own medical professionals. |
| Policy definition | You meet the definition total and permanently disabled as set out in a policy. This is typically: Any Occupation, Own Occupation or Homeowner. |
What types of TPD cover are available?
There are four main types of TPD cover available:
- Own occupation. This provides cover if you can't perform your regular occupation anymore.
- Any occupation. This provides cover if you can't perform any type of job anymore.
- Home duties. This is designed to protect you as a stay at home partner in case you can no longer perform home duties.
- Modified TPD. This provides cover if you can no longer perform the activities of daily living
Own occupation vs Any Occupation
'Own' occupation and 'Any' occupation policies will payout depending on the severity of you disability and how it affects your ability to perform your job.
When does each type payout?
| How does your disability affect your ability to work? | ||
|---|---|---|
| You can no longer work at all, in any type of occupation. |
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| You can no longer perform the duties of your specific field of work but can still physically perform in different types of jobs. |
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Further requirements for a payment
| Criteria | ||
|---|---|---|
| Permanent or temporary disability? | Permanent | Permanent |
| Time out of work before payment starts |
| Six months from your regular occupation |
Own occupation cover will give policyholders greater flexibility but is generally more expensive and only available to certain occupations.
Michael's TPD decision
Michael is a surgeon and he lost the use of one hand. Under the definition of own occupation, he would be considered to be permanently disabled as he is unable to continue his practice as a surgeon and therefore, the benefit payment is payable. However, under any occupation definition, it could be argued that despite of his inability to continue to practice as a surgeon, he could still use his medical expertise and work as a lecturer or hospital administrator.
Own vs Any Occupation: What's the difference?
Home Duties vs Modified TPD
| Home duties | Modified TPD | |
|---|---|---|
| Who is this policy for? | Family members who perform domestic duties in the household. | This can cover anyone. |
| When does it payout? | You no longer can perform unpaid domestic duties in a full time capacity. | You're no longer able to perform two daily living activities without assistance. |
What are home duties?
- Maintenance and care of the family home
- Management of the household
- Looking after dependent children
- Cooking and cleaning
- Repairs and maintenance around the household
What are some examples of daily living?
- Bathing or showering
- Dressing and undressing
- Eating and drinking
- Using the toilet for hygiene
- Getting in or out of a bad/wheelchair
What's next?
What can a TPD payment be used for?
Some of key uses that a TPD lump sum payment can be used for include:
- Outstanding debts
- The ongoing cost of living
- Income replacement
- Medical expenses not covered by health insurance
- Home modifications
What features does TPD offer?
- Death benefit. A benefit amount may be payable in the event of your death, given that your TPD cover is a standalone policy.
- Total disablement benefit. A benefit is paid if you are disabled due to an injury or illness and are unable to perform work duties.
- Partial disability benefit. A portion of the sum insured on your TPD insurance may be payable in the event of a permanent loss of the use of: one arm, one leg, or sight in one eye.
- Your choice of 'own occupation' or 'any occupation' definition. Make sure that you compare the definitions of total and permanent disability used in your insurance policy, as not all insurance companies will define them the same way. From there, you can choose the definition of own occupation or any occupation that can suit your personal circumstances best.
- Guaranteed future insurability. This feature allows you to increase the coverage of your policy during the important life events, such as marriage, children, or mortgage, without needing to undergo another medical examination, even if your health situation has changed.
- Indexation benefit. Sum insured will increase annually in line with the Consumer Price Index (CPI) to keep up with inflation.
- Loss of independence feature. In some cases the lump sum payment available with TPD insurance can convert to a loss of independence payout, based on the insured's ability to care for themselves.
- Premium freeze option. Some insurers offer this option in which you can choose to retain your current annual premium under a stepped style when you reach a certain age and it will reduce the insured amount gradually.
- Buy back option. This option is only available when your TPD cover linked to your existing term life insurance. When a TPD claim is paid, the amount will be deducted from your life cover amount - buy back option will allow you to reinstate that amount.
Should I choose a standalone or linked TPD?
Linked to term life insurance If TPD cover is added to a term life insurance policy, the benefit paid under a TPD claim may replace the insurance cover that is in place for life insurance. Many providers will then cancel the policy if a TPD claim has been paid and no further premiums are payable or benefit received for life cover in the event that the policyholder dies. Policyholders who choose a linked plan can avoid this by finding a policy that offers the Buy-Back benefit. Under this benefit, the insured can repurchase the sum paid for TPD cover following a claim.
What is the difference between income protection and TPD insurance?
| TPD insurance is designed to provide protective cover in the event of a long term disability | Income protection insurance provides coverage for both short and long term disabilities |
| TPD insurance benefit comes in a form of lump sum payment | Income protection insurance provides an ongoing monthly benefit to serve as a replacement income for a specified benefit period |
TPD insurance is similar to income protection insurance in which you will be financially taken care of if you are unable to work due to an illness or injury. However, there are a number of differences between the two types of insurance.
What is the difference between TPD and trauma insurance?
| Details | ||
|---|---|---|
| What events does it cover? | You suffer a serious injury or illness and you are disabled and it's unlikely that you will ever work again. | You suffer a critical illness e.g. a heart attack |
| Maximum sum insured | Larger maximum sum insured, usually up to $10m | Maximum sum insured is less than TPD, usually up to $5m |
| How am I paid out on claims? | Lump sum | Lump sum |
| What features are included? | Inflation protection, partial disability benefit, premium freeze, double TPD benefit | Inflation protection, death benefit, premium freeze, double trauma benefit |
| Is it available though super? | Yes | No |
Why should I consider a total and permanent disability plan?
TPD insurance cover can help you meet the daily living expenses and other costs that follow when you have been rendered permanently disabled and unable to return to work again. TPD can be a more cost effective option than income protection and offers cover for expenses including: TPD insurance provides a regular source of income to ensure your family can maintain their current way of life in the event that you are unable to return to full-time work.
- Hospital and medical bills
- Rehabilitation costs
- Specialist treatment or medications
- Modifications to your home and vehicle
- Costs of a permanent housekeeper or nurse
- Mortgage or rent payments
- Bills and utilities
- Education expenses
- Debts
What is double TPD?
How much TPD insurance cover do I need?
The amount of cover required can vary drastically between people, as they will have different needs and circumstances, so it is important to take your time to ensure you are not under or overinsured. Using a needs-based approach can help you determine the appropriate level of cover. The key expenses you need to consider are as follows:
- Ongoing expenses and debts. List all the financial commitments your family have currently, from ongoing living expenses, children’s education expenses, bills and debts.
- Future expenses. Consider any future obligations that your family may have, i.e. your children’s higher education costs.
- Potential medical expenses. Determine the sum to cover any unexpected costs, such as medical expenses, rehabilitation costs, nursing care and home and/or vehicle modification costs.
- Gather a total Calculate the total costs of all of your commitments.
- Consider your families needs. Take into account your partner’s age, his/her capacity to earn an income, the number of children that you have and their respective age, to determine how long you may want to cover your family’s needs for.
How are TPD premiums calculated?
As with any form of insurance, the cost of your total and permanent disability policy premiums depends on the level of risk you carry. This assessment varies between providers but some indicators of risk that are generally used include:
Age
This is one of the most important factors to affect your premiums. TPD insurance premiums are generally stepped, which means as you get older, your premiums will increase each year.
Gender
Women are typically able to qualify for lower premiums because their life expectancy ratio is generally higher than men.
Occupation
Your occupation and its perceived level of risk will also determine the level of premium payable. White collar occupations that require no manual work will pay cheaper premiums compared to blue collar occupations that involves manual work and high risk duties.
Family medical history
If there is a genetic or physical ailments in your family history, this may potentially increase the level of risk you carry and your premiums.
Current health indicators
There are key indicators which an insurer will use to gain a picture of your health, lifestyle and level of risk, and your premiums can be affected by your current blood pressure, allergies, cholesterol levels and red blood cells.
Lifestyle choices
If you smoke, drink or participate in high risk activities on a regular basis, these factors are also taken into account when calculating your level of risk. Since there are many variables that can affect your cover and the cost of your premiums, it is essential for you to gather and compare total and permanent disability insurance quotes online before you buy. However, keep in mind that the quotes you receive can change once your application is assessed in detail by the insurer's underwriter. Therefore, if you have a certain pre-existing medical condition, or are working in a high risk occupation, it can be beneficial to search for an insurer who specialises in these fields, as they often have risk minimisation strategies in place to offer more affordable premiums than a mainstream insurer.
Standalone or linked TPD
Is a standalone policy or a linked policy more worth it?
You have the option to reduce the cost of your TPD insurance by linking it to your existing term life policy. It is important to note that for some insurers, the sum insured may be payable only once to cover either a permanent disability or death. This means, if a TPD benefit is paid, the policy may be cancelled and no benefit is payable when the insured dies. As an example, you have taken out a term life benefit of $500,000 and this policy is linked to a TPD policy with also $500,000. If you claim on your TPD cover, your life cover policy benefit will be reduced to $0, which means in the event of your death, no death benefit is payable. However, if you insure a death benefit amount that is a larger sum than the TPD - $700,000 instead of $500,000, you will be left with $200,000 in benefit once you claim on your TPD cover. On the other hand, some insurers also offer a feature (for an additional premium) called 'Buy Back'. Under this feature, when you claim for a benefit payment as a result of a total and permanent disability, you have the option to re-purchase the amount that has been deducted from your term life policy and continue your life cover. This feature is generally not available for TPD policies that are standalone or linked under a trauma cover.
Who offers TPD together with death cover?
Many Australian life insurers offer life insurance (death cover) bundle with trauma and total and permanent disability insurance policy these days, either as separate policies or linked. Some of the providers that finder.com.au's representatives compare on its panel include:
Can I get TPD through my super?
You can obtain TPD insurance policy through your superannuation, which means your policy is owned by a trustee of an eligible super fund and you are a contributing member of that fund. Your contributions will be used by your trustee to pay your insurance policy premiums and in this situation these premiums are often tax deductible. TPD can also be taken out through a self managed super fund (SMSF), and if you are a member of more than one super fund, you can have your TPD insurance provided by one fund, and use the other to accumulate funds for your retirement. Other insurance products that you can obtain through superannuation funds include:
- Term life insurance, or death cover
- Income protection insurance
- Critical illness insurance, or trauma insurance
Advantages and disadvantages of TPD through super
You can only obtain TPD insurance through your super fund if the fund also provides you with death cover. If you are thinking of obtaining your total and permanent disability insurance through your superannuation fund or SMSF, there are some advantages and disadvantages that you need to be aware of.
Tax deductible premiums
| Insurance premiums can eat into your investments and retirement funds
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Salary sacrifice
| Benefits are paid to your trustee.
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Personal and government contributions
| 'Own' occupation TPD insurance can be limited
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Benefits can be tax free
| TPD benefits are tax free outside of superannuation
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Increased cash flow
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You may find that you are already covered with TPD, including death and income protection insurance, through your employer’s nominated super fund. So, it is important to review your current TPD cover inside superannuation and determine whether the current cover is enough to match your needs and situation.
Can I have more than one TPD policy with multiple funds?
Some people may already have TPD cover inside their superannuation with multiple funds. As long as the premiums are paid for, there should be no reason why you can’t own more than one TPD policy within a superannuation environment.
Can I have TPD inside and outside of super?
On the other hand, if you have TPD cover inside your super and you are looking for additional cover outside superannuation, it is essential to consult with an insurance adviser first who have the knowledge and expertise in providing you with a recommendation tailored to your needs. Note that insurance providers often have different rules and regulations in regards to owning multiple TPD insurance policies.
Is TPD tax deductible?
Yes, total and permanent disability insurance benefit payment is tax-deductible. However, the premiums you pay for TPD insurance is generally not tax-deductible.
TPD Insurance through Superannuation and Tax
When held inside superannuation, the tax treatment for TPD insurance premiums will vary depending on:
- whether or not the policy meets the definition of a “disability super benefit” condition
- whether it is an own or any occupation TPD policy
- if it is bundled with life cover.
TPD insurance premiums are only fully tax-deductible when the policy definition match the conditions of disability super benefit, under any occupation definition. If held under TPD own occupation definition, only a portion of your premiums are tax-deductible, at 67% and 80% when bundled with life insurance cover. Your TPD insurance proceeds may also be subject to tax when held inside superannuation, depending on whether you receive the benefit as a lump sum or monthly payments. Read more on the tax treatment of TPD insurance to get a full understanding.
What should I look for in a TPD policy?
Comparing a range of TPD insurance plans will give you the opportunity to look for a plan that is suited to your requirements yet comes at a competitive price. The cost and features of TPD insurance coverage may vary between policies and insurers, so it is essential that you do some research in order to boost your chances of finding the ideal plan. Some of the factors that you have to look into when you are comparing TPD insurance plans include:
- The cost of the cover. You have to be able to keep up with the premium payments of your TPD insurance to avoid cancellation of the plan. This can be affected by a number of factors, such as your age and health, your occupation, the level of coverage you choose, the provider and plan you opt for. Whilst the cost of coverage is important, you should make sure you do not base your decision solely on price, failure to do so could result in you being underinsured.
- The features and definitions of the policy. It is essential that you check the features and conditions of the TPD insurance plan so that you have a clear understanding of the events you will be covered for. With so many different features and benefits available on policies, it is essential to read through the PDS and speak with an adviser to help you assess if it is the right plan for you.
- Any exclusions and restrictions. All insurance plans come with various exclusions and restrictions, and it is important that you check these so that you are able to better determine what is and is not covered under the plan
- Most policies will not cover people for disablement that have been caused directly or indirectly by intentional acts of the deliberate person e.g. self-harm
- Most policies will not provide cover for disablement that has been caused directly or indirectly by war or terrorism.
- The level of coverage. The cost of the coverage you take out can be affected by the level of insurance and protection you want. You should make sure you pay careful attention to the level of coverage you get with TPD insurance, as you should make sure that the benefit you receive will be adequate for your financial needs based on your financial situation and commitments
- Reputation and customer service of the insurance provider. You will find that there are a number of different insurers who sell death cover and/or total and permanent disability insurance on the Australian market. It is essential do your research on the company's background, claims history, and level of customer service to determine whether or not, the insurance provider of your choice can provide you with the benefit that you may require in the future.
Who can apply for TPD cover?
How to do I apply?
The best way to start applying is by comparing quotes from a range of insurers. You can get a better understanding of how to apply here.
How do I make a successful claim?
To ensure success in claiming your TPD insurance benefit, it is important to have a clear understanding on the terms and conditions of submitting a claim with your insurance provider. Key conditions include:
- Understanding the difference between own or any occupation: It is crucial for the policyholder to have a clear understanding of their policy definition. Remember that a total disability benefit is only payable when the policyholder has satisfied the condition of their policy.
- Inability to perform your occupation for at least six months: You will also be required to provide proof that you are unable to perform the duties of your primary occupation for six months before turning 65 years old.
- Partial disability benefit: You can still receive a benefit payment even if you are partially disabled and able to work in your own occupation at reduced hours. For the benefit to be payable, you must meet the requirements of a partial disability, which may be hours or duties based, or permanent loss of use of one arm, leg, or vision. Your condition must also be certified by an approved medical practitioner.
You can read finder's guide on successful TPD insurance claims for a more detailed insight into the process.
Can I go back to work, even after making a successful claim?
It is possible in certain circumstances to return to work after being paid out on a TPD (Total and Permanent Disability) claim. This will depend on the policy type:
- Own occupation policy. If your disability is such that you cannot perform your chosen occupation and you have taken out a policy that specifies the inability to perform your ‘own’ occupation (rather than ‘any’ occupation), then you will more than likely be paid out in a lump sum. If in the future, you are then able to perform some sort of work other than your chosen occupation, there is nothing to prevent you from doing so.
- Any occupation policy. On the other hand you take out TPD cover that specifies the inability to perform ‘any’ occupation, then it will be more difficult for you to qualify for a payout and if you do, it will mean your disability is truly total and permanent and you will thus be unlikely to return to the workforce. For this reason, TPD insurance specifying ‘own’ occupation is more expensive and is only available for certain occupations.
Frequently asked questions
Q. How much total and permanent disability insurance do I need?
A. When determining how much TPD insurance you may need, the general rule of thumb is to take out coverage that is ten times of your annual salary but you should consider your own circumstances and obtain advice on the appropriate level of cover for you.
Q. Can I add total and permanent disability insurance to my life insurance policy?
A. Yes, you can TPD cover onto your existing life insurance policy to have a more comprehensive coverage. Just be aware that your benefit will only be payable to cover an event. So when a TPD claim is made, the benefit amount will be deducted from life insurance cover.
Q. Can my self-managed super fund own my TPD insurance policy?
A. Taking out insurance through a superannuation fund is a common option, and if you have set up your own self-managed super fund then your fund can own your TPD policy. In the event of a claim, the benefit is paid to your self-managed super fund, and you must meet the guidelines for a superannuation TPD policy to allow you to withdraw the benefit payment before your retirement.
Q. What is the difference between 'own occupation' and 'any occupation'?
A. If you specify 'own occupation' on your TPD insurance application, this means you will be paid a benefit if you are found to have a permanent disability which prevents you from performing the job you are trained in. Own Occupation TPD Insurance is no longer available through superannuation. Any occupation definition will provide a benefit payment if the insured is deemed permanently disabled and unable to permanently disabled and unable to perform any occupation.
Q. Do total and permanent disability policies have a waiting period?
A. Depending on the policy you choose, you may be required to be unable to work because of an illness or injury for at least three to six months, before you start receiving any benefit payouts.
Q. What illnesses or injuries are excluded from a TPD policy?
A. In most cases only intentional, self inflicted injuries will be excluded from receiving a successful claim payment.
Q. Is a TPD benefit paid from the benefit of a linked life insurance policy?
A. When your policies are linked and you make a successful claim on your TPD policy, the benefit you receive will be deducted from your life insurance amount. If you don't want your life insurance to be affected by a TPD claim, you can choose a Double TPD policy, a TPD Buy-Back benefit, or a stand alone TPD policy. In these cases your life insurance benefit won't be affected, and if it is, it will be reinstated after several months.
Q. Does TPD insurance cover me when I'm overseas?
A. You can find TPD policies which will cover you for illnesses or injury you incur while you are travelling overseas, or living overseas for an extended period of time. Just make sure you check the conditions of your particular policy with your insurer.
Total and permanent disability insurance is an important accessory to have in your life insurance arsenal. TPD insurance is relevant for singles, couples and families because even if you don't have any dependents, how are you going to find the means to look after yourself and pay your medical bills if you are unable to work because of illness or injury? If you do have a family relying on your income, think about how their lives would be impacted if they had to find other sources of income, not to mention the resources to look after you.
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