What is Total Permanent Disability Insurance (TPD)?
Total and permanent disability insurance (TPD) cover is a form of "living" insurance that provides a one-off payment in the event that you become totally and permanently disabled from a serious illness or injury, and you are unlikely to return to work in your normal capacity ever again. TPD is a financial safety net in case you can't work again.
What's the difference between TPD cover and Income Protection?
- TPD insurance. This type of cover pays out when you become permanently disabled, to the extent that you are never expected to be able to return to your work ever again.
- Income protection insurance. You will receive up to 75 percent of your average income if you are too sick, or so badly injured, that you can not attend to your work until you recover.
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Is TPD cover worth my money?
To determine if you need TPD insurance, you will need to assess your personal circumstances. Some of the key areas to consider include:
- How comprehensive is your private health insurance? Assess if your private health cover also has provisions for on-going medical costs such as rehabilitation.
- Do you have life insurance that includes TPD cover already? If you have a life insurance policy through superannuation they might also include TPD cover.
- How much money will your family need to continue it's living standards? If you can no longer work, consider what percentage of your income needs to be replaced to pay for your ongoing costs.
- What other forms of assistance are available to you? That is, your existing savings and assistance from close family.
- Do you have enough assets to meet your current debts? Consider the fact that if your debt will continue to exist even when you're no longer able to work.
- Are there workers compensation benefits that you're entitled to? Check with your workplace to find out if you have any workers compensation in place.
Make sure you assess these areas and consider if you have any shortcomings that can be protected with a TPD insurance policy.
How can this page help me understand TPD insurance?
A good total and permanent disability insurance can provide you with the following benefits:
- Help you obtain the expert medical care you need. Your private health insurance may not cover the extras needed to cover for things like on going medical costs.
- Peace of mind: Both you and your family will be able to benefit from valuable peace of mind when you have TPD insurance coverage in place. This is because you have the reassurance that you will not be left struggling financially in the event that serious illness or injury puts an end to your working life and leaves you in a position where you can no longer earn an income for yourself and your loved ones.
- Vital financial protection: If you rely on your income, as most of us do, finding yourself in a position where you can no longer earn it could be devastating. With TPD insurance, you will be able to lighten the financial burden of such a situation, as you will receive benefit from the policy to ensure your financial stability.
- Improving quality of life: If you find yourself in a position where you can no longer work and earn due to serious illness or injury, you could find that your quality of life goes downhill. This can stem from all sorts of things, such as lack of finances, lack of self esteem, feeling helpless, emotional turbulence, etc. With the pay out from your TPD insurance you can reduce the risk of financial hardship and you can also take steps to improve your quality of life, whether this means making changes to your home to improve comfort and practicality in line with your condition, paying for care or treatment to help improve your health and quality of life, or using some of the money to do things that you enjoy and are still able to do, such as travel.
- Modifications to lifestyle. TPD cover can assist you in constructing any structural changes you may need to make to your home such as wheelchair ramps and handrails or a larger bathroom.
This will generally come down to preference depending your personal circumstances. The main benefit of having a linked policy comes from having financial support you if you become permanently disabled and for your family if you pass away. Standalone policy might offer a more affordable option if you don't need life cover.
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As previously mentioned, total and permanent disability insurance will provide you with financial assistance if you are suffering from a disability that is deemed total and permanent and you are unable to work again. Each insurance provider will define what constitutes a permanent disability differently; therefore it is important to understand what they are and assess whether it applies to what you are looking to cover. A permanent disability is generally defined as:
- Loss of limbs, which include arms or legs
- Loss of vision
- Absence from your primary occupation for more than six months, with no expectation of you ever returning to normal work, as a result of an illness or injury.
Insurers will also further define your disability
Disabilities are further broken down by TPD insurance providers to whether you:
- are unable to work in any occupation again; or
- are unable to work in your usual occupation again.
- Any Occupation. This is defined as your inability to perform any job which is either related or unrelated to your field of expertise. If your policy has a clause which is categorised as "any occupation" you will be paid a benefit if you become disabled and unable to perform any type of job.
- Own Occupation. This is defined as your inability to perform the job you are employed in or have received training for and gained experience from. Unlike "any occupation", "own occupation" is very specific and will only pay you a benefit if you cannot perform the job you have been hired to do. Once you are declared fit to do another job, your benefit payment will end. Own Occupation TPD Insurance is no longer offered through superannuation. This came into effect July 1, 2014.
The four main types of TPD policies.
- Own occupation. Covers you if you're disabled and can't work in your previous occupation as a result.
- Any occupation. Covers you if you're disabled and can no longer work in any occupation.
- Home duties. Covers you if you're a non-working partner and for the costs of replacing your stay at home duties.
- Modified TPD. Covers you if you can't perform activities of every day living e.g. walking, showering, eating, etc.
Everybody's situation is unique and different to one another, therefore, there is not one-size-fits-all rule as to how much TPD cover you may need. The best way to determine the amount of cover you may personally need can be ascertained by taking into account you own situation independently, such as:
- Your income both now as well as your anticipated income in the future. This is important as your income will have to be replaced if you are no longer able to provide it. You will have to decide whether you will need enough cover paid out in a lump sum to invest in order to create an income or treat your benefit payments as replacement income.
- The number of dependants you have, or will have in the future. The number of dependants you have or are likely to have responsibility for in the future is an important factor as total and permanent disability will most likely mean that you will be no longer able to carry out your obligations to these individuals. By taking out TPD insurance you will be able to continue your financial obligations in this regard but you will have to know how many people are involved and what the cost of keeping them will be.
- The amount of short-term or long-term debts you have. You may wish to pay off your mortgage, car, or any other debts you may have. Any outstanding debts that you have will have to be accounted for in order to determine the appropriate amount of cover you may need.
- Your existing assets.If you own other property or shares you might consider selling them off in order to create liquid funds to pay off debts. This will give you a better cash flow and create a situation where you can cut back on the amount of insurance you will need to achieve the same end.
- Superannuation. Most Australians have superannuation in place in order to save for their retirement years. But what most Australian may not know is that that they may be already covered for total and permanent disability with their super fund. It is essential to check whether you are already covered and the amount of cover that you have. At times, TPD cover inside superannuation may not provide enough cover, therefore, it is important to consider taking out larger sums of cover to avoid underinsurance. You can learn more about life insurance inside super here.
There are a number of different factors that insurance providers use to determine the level of risk of you carry, which will then influence the level of premiums you pay. TPD insurance premiums are influenced by the following factors:
- Gender - Gender plays a big role in determining the amount of premium in your TPD policy. A man will generally have higher premiums than a woman because statistics have shown that men are more exposed to risks that might lead to serious injuries.
- Occupation - Some occupations are considered higher risk than others because of the amount of danger they are exposed to on a daily basis. Some of occupations that are considered high risks are truck drivers, fishermen, police officers, construction workers, and firemen. Compared to a regular office worker who sits in front of the computer and does some paper work, the previously mentioned people have a higher percentage of sustaining critical injuries because of the nature of their jobs. If you find yourself to be in a job like this, expect a much higher premium than a white collar worker.
- Lifestyle - Your lifestyle includes your health and your hobbies. If you are involved in hobbies such as bungee jumping or rock climbing, you will be categorised as someone with high risk because of the fatal injuries you can sustain through these sports and hobbies. Even your health condition will play a determining factor in how much premium you will pay.
- Age - Providers' opinions and assessment might vary on this one. Young people are considered reckless because of their age and most underwriters will assess your lifestyle to determine how high your exposure to risk is. Older people, on the other hand, might also pay a higher premium because of their risk exposure to injuries that occur during old age.
- Driving - Your driving record will say a lot about your lifestyle and the possibility of an injury. The number of tickets you get because you went beyond the speed limit can either disqualify you to have TPD cover or lead you to paying a higher premium.
There were 2.2 million Australians from age 15-64 who live with a disability in 2009, which accounts for 15% of the total Australian population and with over half suffering from disability were women (ABS, 2012). The likelihood of one being affected with a disability increases with age and as Australian Bureau of Statistics report has shown, the rate becomes significantly higher for those in the older age groups and those in the prime working age, particularly 45-64 years olds (ABS, 2012).
Every year, as many as 235,790 parents of working age will suffer from a serious illness or injury with over 17,000 of them will be forced to stop working, either permanently or for an extended period of time. Many of these parents have dependents. This means, more than one in five Australian families will be impacted by serious accident, illness, or even death in their working lives (Lifewise/Natsem, 2010). Families who lose one of the working parents will experience a decrease of more than half of their income following a serious illness or injury. All these events can be avoided if there is an adequate level of insurance in place, and yet 95% of Australian families are still underinsured.
You can choose to take your TPD cover out as part of a life insurance policy, which offers ease and convenience, or you can take the cover as a standalone plan. This will depend on your personal preferences.
Comparing a range of TPD insurance plans will give you the opportunity to look for a plan that is suited to your requirements yet comes at a competitive price. Remember, the cost and features of TPD insurance coverage can vary from one plan and provider to another, so you will need to put in some research and time in order to boost your chances of finding the ideal plan.
Some of the things that you need to look at when you are comparing TPD insurance policies include:
- The cost of the coverage: It is important that you are able to maintain the premiums on your TPD insurance to avoid invalidating the plan, so the cost of the coverage is a very important consideration. This can be affected by a number of factors, such as your age and health, your occupation, the level of coverage you choose, and the provider and plan you opt for. Whilst the cost of coverage is important, you should make sure you do not base your decision solely on price, as otherwise you could end up with unsuitable coverage
- The features and definitions of the policy: It is extremely important that you check the features and the wording of the TPD insurance plan so that you know exactly what protection it offers and so that you can make a more informed choice with regards to which plan you choose. Of course, insurance plans can be confusing for those with little experience in the field, so if you are unsure as to the meaning of any of the features of any of the wording, don't be afraid to speak to the insurance provider or even speak to a financial adviser for advice and assistance
- Any exclusions and restrictions: All insurance plans come with various exclusions and restrictions, and it is important that you check these so that you are able to better determine what is and is not covered under the plan
- The level of coverage: The cost of the coverage you take out can be affected by the level of insurance and protection you want. You should make sure you pay careful attention to the level of coverage you get with TPD insurance, as you should make sure that the benefit you receive will be adequate for your financial needs based on your financial situation and commitments.