What Does TPD Insurance Cover?

Want to know what exactly what TPD Covers? Learn more and compare policies with confidence.

TPD insurance, also known as total and permanent disability cover, is a type of living insurance that provides you with a financial assistance in the event that you have been permanently disabled and unable to work in a normal capacity ever again.

What does TPD cover?

A TPD policy:

  • Covers serious illness and injury that affect your ability to return to work in full capacity.
  • Provides a lump sum benefit payment if you are permanently disabled and unable to work again.

What types of disabilities are covered? 

Definitions will vary

TPD Insurance provides cover for a range of common disabilities impacting Australians, but whether not you are considered disabled will be different according each insurer. There are many definitions and rules to be mindful of, so be clear with the terms of your policy to understand the disabilities you’re covered for. Protect yourself by reading your product disclosure statement (PDS).

Despite the various terms, common disabilities covered by a TPD policy include:

  • Hearing Loss. There are approximately 30 thousand people who are totally deaf. This accounts for 1 in 6 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 2 million people are estimated to suffer from Dyslexia.

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Coverage is the amount of money that you will be paid in the event of a claim. An insurance consultant can help you determine an appropriate amount. Calculator
Provides a lump sum payment if you become totally and permanently disabled and are unable to return to work.
Provides a lump sum payment if you suffer a serious medical condition. Cover can be taken out for 40-60 medical conditions depending on the policy you choose.
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Why should you consider getting TPD cover?

You may think that nothing will ever happen to you, but life is unpredictable and even the most careful individuals may experience a debilitating injury due to an accident. Statistics have shown that:

  • 1 in 3 Australians will be disabled for more than 3 months before they reach 65 with no source of income.
  • 15% of the total Australia population between the age of 15 and 65 are totally or severely disabled because of illness, injury, or accidents.
  • In 2005, Australians that experienced a work-related injury, only 57% received financial assistance and 55% of those received Workers Compensation (ABS, 2006).
  • Every year, there are over 50,000 cases of heart attack in Australia (Heart Foundation, 2004).

What can a TPD payout be used for?

  • Source of income. It can be a source of income if you are unable to work anymore due to your disability.
  • Existing debits and loans. It can be used to pay up any debts or loans you have easing up any financial stress that might pile up if there is no TPD to cover for your hospitalisation and rehabilitation.
  • Extra medical care. It can be used to pay for home care should you need extra medical attention after getting out of the hospital. Without TPD, these medical expenses can greatly stress you out financially and emotionally.
  • Modifications to your life style. It can be used to make some changes in your house or car if you need alterations and modifications to fit your lifestyle and make it easier for you to move around.

Isn't this covered by income protection?

Although TPD and income protection look similar because you receive them after a disability due to an injury or illness, TPD is a lump sum benefit given to you once you make a claim; while income protection is paid to you on a monthly basis until you are able to go back to work again. Moreover, TPD is only paid when you are declared as totally and permanently disabled. The benefit you receive from your TPD insurance policy can be used in various ways as you deem necessary.

How much cover do I need? 

The amount of TPD insurance you require is assessed on your individual circumstance and financial position. What you can afford comes down to a combination of your debt and expenses, and any potential medical conditions arising in the future.

It’s up to you to decide how much cover is needed, but weigh up the following factors to find the right policy.

  • 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.
  • Who depends on you? If you have any family members impacting your financial position consider how much it could cost to support them if you become disabled.
  • Do you have outstanding debt? Look at how much you owe to your financial institution, or other parties.
  • Do you have any assets or shares? This is how much you have in your name including properties and investments.
  • What kind of insurance do you have? Consider your level of private insurance and if have any insurance in your Superannuation fund.

If you’re unsure about how much you should spend on TPD Insurance, speak to a financial adviser who can help devise a policy suitable for your personal situation.

How does TPD work?

Is it standalone or with life cover?

TPD cover can either be an additional feature of your life insurance policy or a separate policies altogether.

Am I still covered for life insurance if I make a receive a disability claim?

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.

How many times can I claim?

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.

Am covered if I can still work in jobs other than my own occupation?

Disability has two definitions in a TPD insurance under two different types of policies - any occupation and own occupation.

  1. 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
  2. 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

How do I compare TPD?

Total and Permanent Disability insurance may vary from provider to provider. They can have similar features but different definitions. It is, therefore, advisable that you do a little research to gain some understanding on these differences. It will also help you get the best Total and Permanent Disability Insurance policy that best suits you.

  • Determine the amount of cover you need. The search for getting a good deal starts with knowing how much you need. What part of your life will be greatly affected if you suddenly become disabled? What major adjustments will you make if you become disabled? What expenses and loans do you have? By answering these questions you can have a rough estimate of how much it is by assessing your lifestyle and your expenses.
  • Compare premiums and features. Although price can greatly affect your policy, it should not be the only determining factor what type of policy you will get. Affordability is important but if the policy will just be useless. On the other hand, it does not need to be expensive because a good policy does not mean that you are overloaded with features that you don't need. Both of these will just be a waste of your money. Comparing the features and limitations of similar policies will help it make easier for you to find and choose the policy you need. They will tell you how much your policy can do for you and what you can expect from it. Be aware of special or additional features and find out what advantage they can be if you add them to your policy.
  • Read the fine print. This is a very crucial part that you should not overlook. Many people make the mistake of just signing their insurance contract without reading the fine print only to be disappointed or frustrated when it's time to make a claim. The fine print is where you can find the exclusions and other clauses about your policy. They are usually found at the end or below the contract. Makes sure that you read them and understand what they mean. If there is anything that you do not understand, ask. Your insurance provider should explain them to you.
  • Choose a reputable company. There are many insurance providers to choose from so it can be quite a task to choose one which has a shown good performance. You will be able to determine which company delivers what it promises by looking at their claims history record. It will give you a glimpse what it will be like when it's your time to make a claim.

Is disability insurance really a need?

If you are questioning how important Disability or TPD insurance is for you, try answering the following questions:

  1. Do you have outstanding debts that you are paying?
  2. Do you have enough savings to pay for medical expenses should you become ill or injured suddenly?

If your answer to the first question is a yes and a no for the second, then you should consider Disability insurance. Disability or TPD Insurance can:

Cover your liabilities

The primary benefit of having a good and comprehensive Disability Insurance is being able to get your liabilities covered. Outstanding debts, like loans and mortgages, might prove to be very difficult to pay should total or permanent disability be sustained. If such is the case, TPD insurance can help you pay off those debts and loans.

Pays disability-related expenses

Being disabled due to illness or injury could incur additional financial expenses, such as medical and rehabilitation expenses, payments for housing modifications, college education fees, and other lifestyle related payments which include hiring a full time nurse.

How do I take out disability insurance?

One of the easiest ways to take out disability insurance is to compare policies online. An adviser can take you through plans to suit your personal circumstances.

What factors will influence my premium?

  • Age: This is the primary basis of every insurance provider’s assessment when they want to know what the actual status of your health is. So if you have decided you have decided to get income status at a much older age, expect to pay the extra charges.
  • Gender: It has been proven scientifically that women have a longer life span compared to men. Moreover, men are more adventurous which exposes them to riskier situations. Because of these facts, men can pay higher premiums than women.
  • Health: You might already know that health plays a major part in planning which cover you need. Certain health problems, like allergies and high blood pressure, could affect your premium.
  • Driving Records: If you have records concerning drunk driving, it could be taken into account when calculating your premium.
  • Addiction: Your being a smoker or non-smoker could make a whole lot of difference on your premiums.

Can I get TPD through my superannuation?

If you think that getting TPD cover will put a strain in your budget, there is another way to have TPD cover, through your superannuation. Check your superannuation because chances are you might already have TPD cover together with the death cover. It is, however, advisable to check your TPD through your superannuation to see if the cover is enough for you; otherwise you can purchase a separate TPD cover outside your super. There are just some differences between TPD inside and outside your superannuation fund.

  • TPD through Superannuation
  • The premiums are much cheaper if you get TPD cover through your super fund because you pay them using your pre-tax earnings.
  • You don't need to go through a medical check-up. All TPD application through your superfund is automatically accepted.
  • Benefits through your superannuation are only accessible after you retire. This is because your superannuation works like a savings account.
  • If you happen to be under the younger age bracket, your TPD benefits can be subject to heavy taxes.
  • TPD under superannuation cannot be insured as your "own occupation" because it is an additional feature to your death cover.
  • TPD Outside Your Superannuation
  • TPD benefits outside your super fund are readily accessible and are paid directly to you.
  • Your TPD insurance benefits are tax-free.
  • You have a choice as to what type of policy you want - whether own occupation or any occupation.

TPD cover is important as it covers you for any extra expenses if you become permanently disabled. It is more important if you have a job or lifestyle that makes you exposed to risks. Saving for the future may be enough but having something that will help you if extra expenses come is much better.

What extra features are provided by a TPD policy?

There are other options not already included in a Total and Permanent Disability policy aimed at boosting cover when signing on. These additions are known as Optional Benefits, and come at a cost. the include:

  • Double TPD. Available as stand alone or combined policy. It re-instates your Life Cover immediately after a disablement claim, meaning your policy is at the same level at all times. Future premiums on the re-instated portion of Life Cover will also be waived. For example, if you make a TPD insurance claim of $100,000 AUD, premiums on $100,000 AUD of Life Insurance would be waived.
  • Life Cover Buy Back. Here you can re-purchase the amount of TPD cover lost after a claim is made. Unlike Double TPD, the Life Cover Buy Back benefit won’t be back at its original level for 12 months. The benefit can only be purchased under combined cover, so your premium is taken into account as a whole. So, it’s impacted until your policy is restored. For example, if you have a bundled Life and TPD Insurance policy both set at $100,000 AUD, your Life Cover will be half that amount if you make a $50,000 TPD insurance claim.
  • Super Plus TPD Benefit. The portion of ‘own occupation’ TPD cover which is held under the Flexible Linking Plus policy outside Superannuation. This is only optional as a combined policy.
  • Business Increase Benefit. Allows you to increase your cover if a specified event occurs, to help match the growth of your business without the need for additional medical cover.
  • Premium Life Waiver Benefit. Here all premiums payable on the policy are waived if you are totally and temporarily disabled for at least six months. Premiums are waived as long as you are disabled.
  • Multi-Link Benefit. This is when two or more people are applying for TPD cover with the intent of covering their liability under a business loan. In the event a claim is made under a Death Benefit, TPD Benefit, Living Benefit or Terminal Illness Benefit, the sum insured for all benefits for those insured will reduce by the amount paid.
  • Needle Stick Benefit. Pays you a lump sum or installments matching the total, if you contract HIV or Hepatitis B or C due to a needle stick injury. It’s normally only offered to medical professionals.

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.

Richard Laycock

Richard is the senior insurance writer at finder.com.au and is on a mission to make insurance easier to understand.

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