Q: What is TPD insurance? Total and permanent and disability insurance (TPD) covers you in the event where a disability stops you from working again.
This could include accidents (where you lose a limb, lose your eye-sight, etc) or if you become diagnosed with a life-changing illness such as Motor Neurone Disease.
There are two definitions of TPD which insurers cover.
Any occupation. Pays out if you can no longer work in any type of job suited to your education, training or experience (due to disability).
Own occupation. Pays out if you can no longer work in your current job (due to disability)
If you rely on your work to pay for bills, mortgage etc then TPD is worth considering. With over 500,000 disability sufferers who are permanently out of the workforce in Australia, being disabled is a genuine risk.
Simply ask: How would you pay off your mortgage without working again?
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.
TPD by the numbers: It's a small sacrifice to cover a real possibility
The cost of TPD insurance was 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-smoking male using a TPD sum insured of $200,000.
These figures were taken from the Australian Bureau of Statistics report Disability, Ageing and Carers, Australia: Summary of Findings, 2015
1Due to employment restrictions
1Due to employment restrictions
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
Hearing Loss. There are approximately 30 thousand people who are totally deaf and accounts for one in six Australians.
Loss of Sight. It’s estimated 357 thousand Australians are currently blind or suffering from poor eyesight.
Specific mental health disorders. It’s estimated 45% of the population will continue to experience a mental health disorder at some stage during their life.
Speech impairment. More than two million people are estimated to suffer from dysarthria.
One downside of TPD and Life insurance being a single policy is that if you make a claim on your TPD, your death cover benefits become void (unless you take advantage of one of these features). It's advisable that you understand the features and limitations of your policy. Total permanent disability insurance pays you a lump sum payment if you have been declared unable to perform your work duties because of an injury.
A TPD claim can generally be only made once and the amount of the benefit you will receive will depend on how much cover you have applied for and the severity of your disability. If your disability is considered temporary or partial, there is usually no payment made.
Disability has two definitions in a TPD insurance under two different types of policies – any occupation and own occupation.
Any occupation is defined as your inability to perform any type of job which is related to you or not to your training or experience while
Own occupation is more specific because it is defined as your inability to do the job you have received education, training, and gained experience from. An own occupation policy will still pay you out if you can still work other jobs
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:
Checklist for payout
Minimum length of disability
6 months due to an injury or illness
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.
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.
Covered by both policies
2. You can no longer perform the duties of your specific job (but can still physically perform work suited to your education/experience).
Covered by 'Own Occupation' policies
Not covered by 'Any Occupation' policies
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?
Own occupation cover will give policyholders greater flexibility but is generally more expensive and only available to certain occupations.
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
What features should I pay attention to?
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?
Linked to term life insurance If TPD cover is added to a term life insurance policy, the benefit paid under a TPD claim then part or all of the life insurance benefit is used to pay-out the TPD benefit.
This is typically a cheaper option when it's linked however it does mean there is a chance you will loose your life insurance benefit if you claim.
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.
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 consider your future needs to determine the appropriate level of cover.
1. 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.
How much do you earn? Think about your current income and what your financial position will be the future. For example, your wage could increase in the future. This will need to be replaced in the event of a disability.
2. Look at your current backup finances and plans
Do you have any existing insurance policies. Consider your level of private insurance and if have any insurance in your Superannuation fund.
Do you have any assets or shares? This is how much you have in your name including properties and investments.
Do you have any cash reserves? Check your savings accounts.
How much will TPD Insurance cost?
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:
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:
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.
Women are typically able to qualify for lower premiums because their life expectancy ratio is generally higher than men.
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.
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.
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.
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.
TPD Insurance vs Income Protection
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:
Income Protection Insurance
Short and medium term disabilities
A lump sum payment
An ongoing monthly benefit to serve as a replacement income for a specified benefit period
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:
Hospital and medical bills
Specialist treatment or medications
Modifications to your home and vehicle
Costs of a permanent housekeeper or nurse
Mortgage or rent payments
Bills and utilities
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.
If you have a combined life and TPD insurance policy, the double insurance option preserves your life cover after you have made a claim on the TPD portion of the policy. Generally, once you have made your TPD claim your life policy continues unaffected and with all future premiums waived.
'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.
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
If you have your TPD insurance under your superannuation, the premiums are paid from your tax-deductible contributions to the fund, or from employer contributions. Outside of your super fund, there are no tax deductions allowed for total and permanent disablement cover.
Insurance premiums can eat into your investments and retirement funds
The cost of your TPD insurance is included in the superannuation contribution cap. This means, the more insurance you have, the less funds are available for investments and when you retire.
You can nominate a smaller take-home income amount so you can take advantage of the low tax income bracket and have your employer directly contribute to your super fund, and in turn your insurance.
Benefits are paid to your trustee.
When a successful insurance claim is paid, it is paid to the trustee of the super fund and only they can release the benefits if you meet the conditions of release. The trustee can then use beneficiary nominations, your Will or their own discretion to determine who will receive the benefits.
Personal and government contributions
Policyholders are still eligible to receive government co-contributions while making their own contribution to their super fund.
'Own' occupation TPD insurance can be limited
Your trustee may be unable to claim a tax deduction for your premiums or you may not be able to get access to your benefit immediately unless you meet other conditions of release, such as reaching preservation age, declaring permanent retirement or turning 65.
Benefits can be tax free
Death benefits paid from your super fund managed insurance policy are tax free when paid to the beneficiaries of your policy. A portion of TPD benefits can also be tax-free.
TPD benefits are tax free outside of superannuation
If you are considering running your insurance through your super fund to save on tax, benefits paid for total and permanent disability insurance claims are usually tax free outside of superannuation.
Increased cash flow
You don't have to worry about finding money each month for your insurance premiums because they are paid in your pre-tax dollars. This also means there is less chance of your policy lapsing and you being uninsured.
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.
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.
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.
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.
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.
What isn’t covered by a TPD policy?
An exclusion is when an insurance company won’t return a benefit for a TPD claim due to personal factors you didn’t declare prior to your policy, or because of acts that void cover.
Instances include failing to declare pre-existing medical conditions or participating or participating in violence. Here’s a list highlighting circumstances where you won’t receive a payout under your TPD policy.
If you don’t declare your pre-existing medical condition. You won’t be covered by a TPD policy if you show symptoms or seek medical advice, and there are signs showing you were already suffering a pre-existing condition.
What about if you become unemployed and didn’t declare your condition? If you find yourself out of work because of an injury that happened prior to your policy, you won’t receive a benefit.
Committing self-inflicted and harmful acts. If you try to commit suicide or cause self-harm and become disabled, you won’t be covered.
Failure to seek timely diagnosis or treatment. If you ignore your own personal duty to seek medical attention or advice when required, you will void your policy.
A Congenital condition. You won’t receive a benefit if an insured individual or child is found to have suffered a birth defect or anomaly, leading to a disability.
if you’re pregnant. You won’t receive benefits unless you see out a set waiting period to prove you’re temporarily or permanently disabled. This also applies to a miscarriage. Industry standards see most insurers offering a 9 month waiting period before benefits are paid.
If you live a dangerous lifestyle. Your claim could be knocked-back if you’re found to have put yourself directly or indirectly in danger. This could be a result of extreme sport accidents like base jumping.
If you’re guilty of a crime. Your insurer will reject any claim you make for a benefit. You are not covered for time behind bars.
An Act of War. This includes participating in violence, or planning harmful attacks, regardless of whether war has been declared.
Frequently asked questions
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.
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.
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.
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.
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.
A. In most cases only intentional, self inflicted injuries will be excluded from receiving a successful claim payment.
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.
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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