Both income protection and TPD insurance pay you if an injury or illness prevents you from working. However, there's an important difference between TPD and income protection; namely, TPD only pays out if you become permanently disabled and are unable to work again. It's not designed to cover you if you're only temporarily unable to work – that's what income protection is for.
TPD and income protection insurance are different products designed to cover different circumstances. TPD insurance provides a lump sum benefit if you become permanently disabled and income protection insurance provides short-term relief for illnesses and injuries that force you to take some time off work. Here's the full break-down on how they differ.
| Income protection | TPD insurance | |
|---|---|---|
| How does it pay out? | In monthly instalments, like an income | In one lump sum |
| When does it pay out? | If you become sick or injured and can't work | If you become disabled and unable to work again |
| How much does it pay out? | 75% of your monthly income | A specific amount selected by you |
| What is it designed to pay for? | Everyday expenses and payments, just like your income | Debts, medical expenses, home modifications and more |
| How long does it pay you for? | You select a benefit period (2, 3, 5 years etc or up to a certain age, e.g. 65) | You receive a one-off payment (they typically range between $60,000 and $300,000) |
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TPD insurance provides you with a lump sum payment if you become permanently disabled by an injury or illness and can never return to work. Unlike income protection, a TPD policy only pays out when you are deemed permanently disabled. This generally means you must have lost your sight, the use of your limbs or have been absent from work for at least six months as a result of an illness or injury that will prevent you from ever returning to normal work again.
It can be used to pay for a number of things including:
TPD can be a really helpful insurance benefit to have if something more serious happens to you. You can also get it included with your life insurance cover.
Unlike income protection, you also don't need to be employed to be eligible for TPD insurance. For instance, if you are a homemaker, performing unpaid domestic duties on a full-time basis, you would qualify for a TPD benefit if your work involves:
Still not sure it's right for you? Here are a few common TPD insurance benefits that might make it worth buying.
Income protection insurance is a short-term benefit paid in monthly instalments and designed to temporarily take the place of your regular income while you recover from an illness or injury.
It usually provides you with up to 75% of your monthly income, which in the short term can be enough to keep you and your family provided for while you aren't earning. An income protection policy will usually have standard features built in such as:
If it's simply income replacement you're looking for, your best option is probably income protection insurance. It's ideal if you need to take some time off work because of an injury or illness.
TPD, on the other hand, can be invaluable if your injury is more serious and you want to clear big debts like your mortgage.
If you want total peace of mind, you need to consider having both. Income protection only provides cover for 75% of your income, so TPD insurance can be taken out to fill the gap and provide you with the other 25% needed, given the right set of circumstances.
Another way the two types of insurance can work together is in relation to waiting periods. Because TPD insurance does not usually pay out for six months or more, you could find yourself with no money coming in for at least that long. In such circumstances, income protection insurance could provide the necessary funds to see you through until you eventually receive your lump sum payment.
Yes. You can often claim both TPD and income protection at the same time and they shouldn't affect one another. However, this might differ from insurer to insurer depending on their underwriting guidelines.
Because your TPD benefit is paying you for the financial impact of being permanently unable to work, it's separate from income protection, which is designed primarily as a form of temporary income replacement. In many cases, this will mean that you can receive a TPD benefit and income protection without the TPD payment impacting your ongoing income protection entitlement. However, there are some exceptions so speak to your insurer before making a claim.
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TPD cover payouts vary a lot, from can range from $50,000 up to to $5 million. So how much TPD is right for you? Let's figure it out.
If you need to make a claim on your TPD insurance, follow these steps to ensure you have the best chance of making a successful claim.
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