What are the key differences between TPD and trauma insurance?
Trauma insurance and total and permanent disablement (TPD) insurance are two different types of cover, even though they are often bundled together in combined life insurance policies. Trauma and TPD both pay significant lump sum benefits to be spent at your discretion and it is common for people to purchased both types of cover. If you’re trying to decide between the two or work out whether you need either, it is important to know the difference.
Same same but different Although TPD and Trauma insurance have some overlap, there are numerous differences to be wary of.
|When does it pay out?||In the event of you being permanently unable to work again||In the event of an injury or illness specifically named in the policy|
|How are benefits paid?||Lump sum||Lump sum|
|Is there death cover if I buy a standalone policy?||Yes on some policies||Yes on some policies|
|Unique features of each type of cover||Three types of cover: Own occupation, any occupation and home duties||Child cover|
|Options to mange your policy||Double TPD buy-back, partial disability benefit, premium freeze, inflation protection||Double trauma buy-back, guaranteed future insurability, waiver of premium, premium freeze, inflation protection|
|Premium options||Stepped, level and hybrid||Stepped, level and hybrid|
|Cover through your super?||Only “any occupation” TPD||No|
|Policy expiry||Converts to a modified TPD policy with reduced benefits or expires at a specified date or age||Expires at specified date or age|
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The cost of any trauma or TPD insurance policy depends on your personal situation, the insurer and the policy, but you can generally expect trauma insurance to be considerably more expensive.
Average cost of trauma insurance and TPD cover
Average cost is taken from quotes available through finder's quoting engine. Quote is based on a 35 year old office worker in NSW. Prices were accurate for November 2016 and are subject to change.
Why is trauma more expensive than TPD?
Premiums are based on risk. A trauma insurance policy covers more situations, is more likely to pay out at some point in the course of the policy and is therefore more expensive.
The difference in payout criteria
- Trauma insurance policies pay out upon diagnosis of an illness or injury.
- TPD pays out upon diagnosis of being unable to work ever again, which rarely happens without disease or injury.
Other factors that influence the cost of your policy
- Any occupation vs own occupation (on TPD policies). An “any occupation” trauma insurance policy will pay benefits if you're medically recognised as being unable to work any longer, while “own occupation” policies will pay out if you can’t work your current occupation again. The former sets a higher bar for disability than the latter does, and therefore costs less. Some insurers may also give you the option of choosing a home duties bar for disablement where you can also meet benefit requirements if you are unable to perform certain everyday household tasks unaided.
- The total sum insured. You will generally have some degree of freedom in choosing your sum insured, which is the maximum amount of benefits that will be payable. A higher sum insured leads to higher premiums.
- Standard or plus cover (on trauma policies). A more comprehensive trauma insurance policy covers a wider variety of diagnoses. Most will cover significant ones such as cancer, but may do so in different ways. The more conditions a trauma insurance policy covers and the more robustly it does so can lead to higher premiums.
We’ve gotten quotes so you can see what the cost difference is. Note that these premiums represent some of the most comprehensive policies available, and that costs will naturally be different for you.
|TPD||Pays a lump sum benefit||Will only payout once disability is proven|
|Choose an own/any occupation or home duties policy||Policy-specific disability criteria|
|Large sums insured are available||Policies typically expire after 65 years|
|Policies can be tailored with numerous options||A waiting period of 3 to 6 months applies|
|Tax-deductible premiums are available (for policies inside of your super)||Own occupation TPD policies cannot be gotten through superannuation|
|Trauma||Pays a lump sum benefit||90-day waiting period|
|Can cover a wide variety of specific and serious health issues||Benefits are only payable after the survival period. This is usually a minimum of 14 days.|
|Options to include child cover||Can be relatively expensive compared to other forms of insurance|
|Many different policies of varying prices and comprehensiveness||Is not available through superannuation|
Looking at insurance claims can illustrate the differences, and the similarities, between TPD and trauma insurance.
- Top three trauma insurance claims: Cancer, heart disease, neurological disorders.
- Top three TPD claims: Musculoskeletal, cancer, mental illness.
Cancer is, by a large margin, the biggest cause of trauma insurance claims in Australia, making up over 60% of claims for males and over 85% for females. All other claims represent only a small fraction of this. However, despite being so common it’s only the second leading cause of TPD claims. Meanwhile, musculoskeletal are unsurprisingly overrepresented in TPD claims, as are mental disorders. This highlights the differences between the two policy types, and how neither one is inherently better than the other.
- If you have both types of cover. Many Australians hold both TPD and trauma insurance policies, and might need to choose which of the two to make a claim against. In the event of cancer, most people opt for trauma because it is easier to make claims.
- Strict criteria for TPD claims. Even a potentially deadly disease like cancer is not necessary disabling, and even the most serious of illnesses may not qualify you for TPD cover.
- Mental illness claims. Mental illness can be difficult to prove and is rarely, if ever, covered by trauma insurance policies. TPD insurance policies, however, are readily paying benefits in the event of these crippling conditions.
The eligibility requirements for TPD and trauma insurance policies may vary between insurers and policies. Some will require medical testing and may impose other eligibility conditions.
- Trauma insurance. You are typically required to be age 17 to 59, living in Australia at the time of your application, and an Australian citizen or permanent resident to be eligible for a trauma policy from an Australian insurer.
- TPD insurance. You must generally be over 18 and living in Australia as a citizen or permanent resident to be eligible for a TPD policy. Certain insurers and policies may require proof of income or financial tests.
If you’re unsure, a qualified consultant may be able to help you out. Compare policies critically and make sure you understand all the terms before signing. Getting both will naturally offer superior cover at extra cost, but if you’re deciding on one or the other try asking yourself a few questions to help make a decision.
- Do I work in a heavy manual labour job? TPD may be advisable. The injuries caused by heavy lifting can be more disabling than dangerous in themselves, and you may be more likely to find suitable cover with TPD.
- Do I have any dependents? If you want a policy that can provide for children or a partner, both TPD and trauma can be effective options, but trauma may be the way to go. You can get useful extras such as child cover and it may be more likely to pay out overall.
- Is money tight? A cheap trauma insurance policy might be very dubious overall. It can be easier to save money without compromising your level of cover with TPD than trauma insurance.
- Do I have a family history of certain health conditions? It may be advisable to specifically look for a trauma insurance policy that offers effective cover of these conditions.