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Why do people choose to cover TPD?
Three key reasons why people opt for TPD cover include:
- Financial assistance for a range of expenses. A TPD 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.
- Cover for specific occupations. Policies have the option to cover specific if you can no longer perform the duties of your regular job (as opposed to a standard requirement where you prove that you can't work in any job).
- It forms a comprehensive insurance plan. TPD cover can also be purchased as an add-on to life insurance, trauma insurance and income protection cover to give you comprehensive cover.
It's a small sacrifice to cover a real possibility
Average cost of TPD Insurance
$15.29 per month
Australians affected by disabilities
1/5 Australians (4.3 million)
No. of people permanently out of work
566,700 disability sufferers1
Average income for someone who is disabled
$465 vs $965 for someone without a disability
If you'd like to do more of your own research, simply check out our TPD insurance guide below.
How does total and permanent disability insurance work?
Here's how a TPD policy works in 3 steps:
1. A situation forces you to stop working
Common examples of total and permanent disability can include:
- Loss of sight
- Loss of hearing
- Loss use of limbs (arms or legs)
- A serious disease that stops you from working
- A debilitating mental illness (some insurers may exclude this)
2. The insurer decides if you are permanently disabled
A Total Permanent Disability (TPD) benefit is usually payable when:
- You become totally and permanently disabled due to either injury or illness
- You aren't at work for a set amount of time
- There's no expectation of you returning to normal work
- You meet any other criteria set out in your policy
3. You are then paid a sum to use however you like
You can use a payout on expenses such as:
- Outstanding debts
- The ongoing cost of living
- Income replacement
- Medical expenses not covered by health insurance
- Home modifications
Example of when a policy would payout
A permanent disability is defined differently by each insurer, but you usually need to meet this type of criteria:
What types of TPD cover are available?
There are four main types of TPD cover available:
- Own occupation
- Any occupation
- Home duties
- Modified TPD
'Own' and 'Any' occupation policies are designed to cover disabilities that stop you from working. There are some key differences.
Michael's TPD decision
Michael is a surgeon and he lost the use of one hand.
If Michael had an 'Own Occupation' policy
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.
If Michael had an 'Any Occupation' policy
However, under an 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.
|1. You are unable to work at all, in any type of occupation / job / role.|
|2. You can no longer perform the duties of your specific job (but can still physically perform work suited to your education/experience).|
Some other requirements for payment for both policies
You'll need to show that your disability is permanent and show a minimum time that you have been out of work (typically 6 months).
Which one costs more?
These two policies are aimed to cover disabilities further outside of standard work situations.
|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.|
|Types of activities you have to show the insurer that you're no longer able to do|
What should I look for in a TPD policy?
Some of the factors that you have to look into when you are comparing TPD insurance plans include:
- The cost of the cover
- The features and definitions of the policy
- Any exclusions and restrictions
- The level of coverage
- Reputation and customer service of the insurance provider
Different insurers will offer a different range of built-in benefits and additional options so it is essential that you read the Product Disclosure Statement (PDS) closely. Note: Most brands will combine TPD, Trauma Insurance and Life Insurance's into one document.
Four crucial features you must check
- Total disablement benefit This is the benefit that's paid if you are disabled due to an injury or illness and are unable to perform work duties.
- Partial disability benefit. This is the amount thats payable in the event of partial disablement e.g. loss of one arm, one leg, or sight in one eye.
- Your choice of 'own occupation' or 'any occupation' definition. Compare the various definitions of total and permanent disability as not all insurance policies will define them the same way. From there, you can choose a definition of own occupation or any occupation that suits your personal circumstances best.
- Buy back option. This option is useful if your TPD cover is part of your 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.
Additional features that are also important
- Death benefit. A benefit amount may be payable in the event of your death, even if your TPD cover is a standalone policy.
- 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.
- 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.
- 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.
Prefer to have someone find you a policy with the right features?
The amount of cover required can vary drastically between people, as they will have different needs and circumstances, so it is important to consider your future needs to determine the appropriate level of cover.
Assess your needs
- 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.
Average cost of a policy (per month)
We analysed the cost of a 35 year old applicant who doesn't smoke for various cover amounts and checked out two different occupation types (white collar and blue collar). Here's what we found:
|Lowest costing policy||$21.42 per month||$21.19 per month|
|Medium costing policy||$26.89 per month||$26.89 per month|
|Highest costing policy||$29.12 per month||$29.12 per month|
|AVERAGE||$25.81 per month||$25.73 per month|
|Lowest costing policy||$10.16 per month||$10.03 per month|
|Medium costing policy||$16.86 per month||$16.84 per month|
|Highest costing policy||$18.85 per month||$18.85 per month|
|AVERAGE||$15.29 per month||$15.24 per month|
|Lowest costing policy||$35.98 per month||$31.78 per month|
|Medium costing policy||$40.37 per month||$40.37 per month|
|Highest costing policy||$55.97 per month||$55.80 per month|
|AVERAGE||$44.11 per month||$42.65 per month|
|Lowest costing policy||$16.26 per month||$15.04 per month|
|Medium costing policy||$23.68 per month||$23.68 per month|
|Highest costing policy||$30.64 per month||$30.34 per month|
|AVERAGE||$23.53 per month||$23.02 per month|
Average prices were taken from a sample quote of all policies available on finder.com.au's quoting engine. Details of the quote were for a 35 year old non-smoker.
Factors that affect the cost of cover
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:
TPD insurance is similar to income protection insurance: you are financially taken care of if you are unable to work due to an illness or injury.
There however some differences:
|Permanent disabilities||Short and medium term disabilities|
|A lump sum payment||An ongoing monthly benefit to serve as a replacement income for a specified benefit period|
Both policies payout a lump sum payment. The key difference is what events are covered.
|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|
|Larger maximum sum insured, usually up to $10m||Maximum sum insured is less than TPD, usually up to $5m|
|Lump sum||Lump sum|
|Inflation protection, partial disability benefit, premium freeze, double TPD benefit||Inflation protection, death benefit, premium freeze, double trauma benefit|
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 cover.
Some of the providers that finder.com.au's representatives compare on its panel include:
'Linked' cover: A cheaper way to combine cover (but it comes at a cost)
You have the option to reduce the cost of your TPD insurance by linking it to your existing term life policy.
Some policies will cancel if a TPD benefit pays
For insurers who offer 'linked cover', 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 life insurance benefit is payable when the insured dies.
Or it will eat into the life insurance benefit
For 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.
Buy back options
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.
Can I get TPD through my super?
You can obtain TPD insurance policy through your superannuation.
This 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|
|Salary sacrifice||Benefits are paid to your trustee.|
|Personal and government contributions||'Own' occupation TPD insurance can be limited|
|Benefits can be tax free||TPD benefits are tax free outside of superannuation|
|Increased cash flow|
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.
Is TPD 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.
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
Various graphics on this page were provided by Guru, Vitaliy Gorbachev, Bhavik Limbani from the Noun Project.
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