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Q: What is TPD insurance? TPD insurance provides you with a lump-sum payment if a serious illness or injury stops you from working permanently.
This includes accidents such as the loss of a limb or eyesight or if you're diagnosed with a life-changing illness such as cancer or motor neurone disease (MND).
There are two main types of TPD insurance:
Any occupation. You can no longer work in any jobs suited to your education, training or experience.
Own occupation. You can no longer work in your current job.
If you don't have the savings to support your current lifestyle and would be unable to keep paying your bills, then TPD is worth considering. Roughly one in five Australians are currently living with a disability, which equates to about 4.3 million people and is why TPD is such an important product to consider.
Ask yourself, "How would you pay off your mortgage without working again?"
Income protection replaces some of your income if an injury or illness stops you from working for a short period of time. TPD provides a one of payment for an injury or illness that stops you from working long term.
Life cover pays out in the event of death which is suitable for those with financial dependents. People often combine life cover with TPD cover.
The example comparison below is for a $500,000 in life insurance policy with a $500,000 TPD extension.
Policy
Feature Score
Monthly Premium
Combined score
Apply
TAL Accelerated Protection (Life: Life Insurance - TPD)
Scores and quotes taken out are for a 35 year old white collar work. Numbers are subject to change in the future. The data above is from Omnium a third party data provider.
Who offers Total and Permanent Disability in Australia?
In Australia you can either get TPD insurance directly with an insurer, or with the help of an adviser (retail insurers). We've compared TPD insurers based on market share.
While it will depend on your policy, if you're making a claim on a joint life and TPD policy your life insurance benefit will be reduced by the amount you're awarded for your TPD claim. However, some insurers offer a buy back option, which means you're able to increase your life benefit back to its original amount before the TPD claim for an additional premium. .
Generally, you can only claim on a TPD once.
Yes. In fact, a 2015 SunSuper study found that of its members who been paid a TPD claim, 36% either returned to work or were looking for a job.
What's covered by TPD?
As has been mentioned, TPD stands for total and permanent disability, but in what actual situations are covered claim? The answer depends on the type of TPD insurance you have.
There are four main types of TPD cover available:
1. Own occupation
This provides cover if you can't perform your current occupation anymore.
2. Any occupation
This provides cover if you can't perform any type of job related to your experience or education anymore. This is harder to prove than own occupation.
3. Home duties
This is designed to protect you as a stay-at-home partner in case you can no longer perform home duties e.g. looking after children.
Michael is a surgeon and he has 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 his inability to continue to practice as a surgeon, he could still work as a general practitioner, denying him his benefit.
Payout comparison
Situation
Cover
1. You are unable to work at all, in any type of job related to your education/experience.
Covered by by Own and Any Occupation.
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
Which one costs more?
Own occupation cover will give policyholders greater flexibility but is generally more expensive.
Both types will require waiting periods
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).
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.
Disability statistics
These figures were taken from the Australian Bureau of Statistics report Disability, Ageing and Carers, Australia: Summary of Findings, 2015
How much you pay will depend on a bunch of factors including your age, gender, occupation and the definition of TPD you go for. For example: on $500,000 worth of cover, the cost for a male ranged anywhere from $21.42 per month to $55.97 per month.
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
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 get more expensive each year.
Women typically qualify for lower premiums because they live longer than men.
Your job affects how much you'll pay for cover. The more dangerous the job the more you'll pay for TPD.
Insurers take into account a range of personal situations including your family's medical history.
Your premiums can be affected by a range of health indicators including your blood pressure, cholesterol 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.
Policy wording and definitions to check
Coverage varies depending on the insurer, so it is essential that you read the Product Disclosure Statement (PDS) closely. Note: Most brands will combine TPD, Trauma Insurance and Life Insurance 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 that is payable in the event of partial disablement eg loss of one arm, one leg or sight in one eye.
Your choice of own occupation or any occupation definition. You'll need to weigh up the pros and cons of any vs own occupation cover, eg cost of cover and when a benefit can be claimed.
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.
Can you get TPD insurance together with other types of insurance?
(e.g. death cover)
Many Australian life insurers offer life insurance (death cover) and let you bundle them with additional types of cover including:
Trauma
Total and permanent disability insurance
Income protection
You can elect to take them out as seperate policies or link the benefit (trauma, TPD and death) amount together.
A linked death with TPD policy will generally work out cheaper than taking out seperate TPD and death policies. However, in the event you need to make a TPD claim, your life benefit will be reduced the amount you claim unless the policy has a buy back option.
Is TPD insurance included in super?
TPD is offered with most default insurance funds
If you get super from your employer you'll likely have some form of insurance. Often, you'll get often get TPD insurance included. Other insurance products that you can obtain through superannuation funds include:
Term life insurance, or death cover
Income protection insurance
Is it a good idea to get TPD inside super?
There are a few pros and cons of getting TPD inside super.
Pros
Often cheaper
Premiums are tax-deductible to a limit
Automatically deducted premiums so you can 'set and forget'
Cons
Eats into your retirement savings
Tougher approval process for claims than outside super
Own occupation definition unavailable
Yes. As long as the premiums are paid up there is nothing stopping you from claiming on more one or more TPD policies you hold through super.
Structuring your policy
There are two main things you'll need to decide on:
Do you just want TPD cover?
Are you buying cover inside or outside super?
A good way to decide on this is to look at what circumstances you want covered:
Circumstance
TPD inside super
Standalone TPD
TPD + Death cover
TPD + Income Protection
1. Disability stops working permanently including jobs related to your experience.
Yes
Yes
Yes
Yes
2. Disability stops working permanently from your specific role.
No
Yes if your policy has an 'own occupation' definition of TPD
Yes if your policy has an 'own occupation' definition of TPD
Yes if your policy has an 'own occupation' definition of TPD
3. Injury or illness stops you from working for a short period of time.
While TPD and income protection protects you in the event you're unable to work, they are different. TPD is focused on long-term disabilities, whilst Income Protection is designed for short-term disabilities.
To calculate how much TPD you require you'll need to 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, ie your children's education costs.
Potential medical expenses. Work out how much you'll need to cover any unexpected costs, such as medical expenses, rehabilitation costs, nursing care and home and/or vehicle modification costs.
Once you have an idea of the expenses and needs of your family, you should also check whether you already have cover through your super (you probably do).
If so, you should ensure that you contact your super fund and get rid of these redundant policies as they will eat into your super savings.
Is TPD tax deductible?
Yes, total and permanent disability insurance benefit payment is tax free. However, your premiums for TPD outside of super are not tax-deductible.
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.
How do I make a successful claim?
Understand what insurers look for during a claim time.
Definitions of permanent disability vary slightly between insurers, but you usually need to meet the insurers checklist. As a general example, an insurers checklist could look like this:
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 of 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. These vary between policies which are generally categorised as any occupation or own occupation. However, some insurers also offer home duties TPD and general TPD policies.
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.
A. When determining how much TPD insurance you may need, the general rule of thumb is to take out coverage that is 10 times of annual salary. However, everyone is different so 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.
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. 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.
This is a little more tricky. In order to trigger a payout, total and permanent disability policies require the policy owner meets the criteria of total and permanent disablement as a result of their illness or injury.
Meeting the criteria
Depending on what's decided on when you apply:
You will need to be unable to work for a consecutive number of months in your own occupation (easier to prove)
Or unable to work for a consecutive number of months in any occupation (harder to prove)
Ongoing care is also required
The person claiming will need to seek the ongoing care of a medical professional. The insurer must also deem that the severity of the sickness or illness means that the insured is unable to ever work in regular remunerative work for which they are fitted either by education, training or experience. For an increased premium applicants can elect to take out cover that will provide a benefit if they are unable to return to their own occupation.
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.
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.
Zubair is a researcher of all things insurance. From understanding what car insurance policy you need to explaining how life insurance premiums work, he has you covered. Zubair wants to make the search for insurance easier.
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Losing a hand as a surgeon
