What are the main types of TPD definitions available?
TPD cover is generally defined as insurance that pays out a lump sum if you become permanently disabled and are unable to work again. This general definition is further qualified by various insurers, who each have their own definition of TPD. This is often similar to one of three main definitions:
- Any occupation This pays a lump sum if you become permanently disabled and are unable to work in your own occupation or any occupation to which you are suited by education, training or experience.
- Own occupation. This pays a lump sum if you become permanently disabled and are unable to work in your own occupation. Because the terms are quite specific and a payout is more likely, this is the most expensive form of TPD insurance.
- Living expenses / Non working. This ignores occupation and pays a lump sum if you become permanently disabled and are unable to independently conduct two or more of the five listed Activities of Daily Living (i.e. eating, bathing, dressing etc). Given that you would have to be severely disabled to qualify, this is the hardest form of TPD insurance to claim on.
Top reasons for claim disputes
How total and permanent disability (TPD) is defined in your TPD insurance policy directly affects your chances of receiving a benefit if you claim. And as this guide shows, TPD definitions have undergone gradual changes, particularly inside superannuation, as insurers seek to tighten up the current definitions.
|TPD definition||Extent of disability required for a payout|
|Any occupation||Unable to work in:|
|Living expenses / Non-working||Permanently disabled and unable to:|
When TPD insurance is held inside superannuation, a claim will only be paid if the member satisfies a condition of release in accordance with the Superannuation Industry Supervision (SIS) definition. This is an “any occupation” definition under the Superannuation Industry Supervision Act in which permanent incapacity is considered a condition of release if the member suffers ill health which prevents them from engaging in gainful employment for which they are reasonably qualified by education, training or experience.
Why is this the case? From July 2014, all new TPD policies within super have been required to be compatible with this condition of release and many of those held prior to this time would be difficult to claim on today due to their non-compliant wording. Own occupation policies in particular would be almost impossible to claim on, which is why they are no longer offered inside superannuation.
A typical TPD policy held inside super uses the following TPD definitions – you are considered totally and permanently disabled if:
Your illness or injury has prevented you from being able to work in any job for at least three months in a row and you are incapable of ever working in any suitable job based on your previous education, training or experience or any job you may reasonably become suited to with further education, training or experience
You have been unemployed for at least six months in a row and your illness or injury has prevented you from doing at least two of five everyday working activities (mobility, communicating, vision, lifting or manual dexterity) without physical help from another person and even with the use of medication and appropriate aids
Changes to TPD insuranceAs noted in the previous section, the typical definition of TPD is changing from the original SIS “any occupation” definition. This is in the wake of one of Australia’s largest insurers TAL being allowed by AustralianSuper to alter its TPD definition as of November 2014. Its new definition now not only requires you to be unable to work in a job within your education, training and experience, but also to be unable to reasonably retrain or re-skill due to your injury or illness. This tightening of the definition will make it even harder for claimants, particularly those in manual and unskilled jobs who are less suited to retraining in desk jobs, to successfully claim on their TPD insurance and it is thought that most other insurers and super funds will follow suit in changing their TPD definitions now that such a precedent has been set.
The short answer is yes and many funds may have already done so.
- If you purchased your TPD cover inside super prior to 1 July 2014, your policy’s TPD definition will be whatever your insurer was using at the time.
- If you purchased your TPD cover inside super after 1 July 2014, its TPD definition will be the SIS “any occupation” definition.
- If you purchased your TPD cover inside super after November 2014 and you are with Australian Super, your TPD definition now includes retraining and rehabilitation clauses as mentioned in the previous section.
- Sun Super has now also introduced a five-year claim payout period instead of a lump sum payment and MTAA now requires medical certification of an inability to work in any capacity rather than just in a job within your education, training or experience.
If you purchased your TPD cover inside super before 30 June 2014 and you make a claim, your cover will not be affected by the SIS change of definition. The same also applies if you apply for additional levels of cover and are accepted; if you claim, you will not be affected by this change. However, policies purchased inside super after this time will be subject to the SIS definition and as time goes by, new members of super funds will be subject to whatever new TPD definitions emerge.
Disability definitions are more flexible within income protection (IP) insurance because recognition is given to both total and partial disability. Income protection benefits are also paid in ongoing instalments, rather than the lump sum payment in TPD insurance. The three main IP insurance definitions are:
- Duties-based definition – you are considered totally disabled and eligible for a benefit if your illness or injury prevents you from performing an income-producing duty and you are not working.
- Hours-based definition – you are considered partially disabled and eligible for a benefit if because of your illness or injury you are working reduced hours (usually less than 10 a week).
- Income-based definition – you are considered partially disabled and eligible for a benefit if because of your illness or injury you are earning less than your normal income (i.e. less than 20% in 6 months).