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TPD Insurance (Total and Permanent Disability)

Mitch Ramsbotham

Financial Expert Updated on October 18, 2022

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In the event of severe illness or injury, the last thing you want to be thinking about is your finances. TPD insurance cover can bring peace of mind when you need it most.

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TPD insurance can provide a financial safety net, helping you support yourself and your family, and cover your medical and rehabilitation costs.

If you have a permanent injury or illness, it may be difficult or impossible to return to your everyday job. In many cases, a permanent injury or disease can stop you from returning to work, making it exponentially more difficult to earn income and support yourself. 

However, getting total and permanent disability (TPD) insurance can supply you with a financial safety net, helping you support yourself and your family and cover your medical and rehabilitation costs. 

TPD insurance can help you avoid devastating scenarios and financial difficulties. Here’s what you need to know about TPD insurance and how it can help you:

What is TPD Insurance?

TPD insurance provides you with the means to get the appropriate medical and rehabilitation treatments for your permanent injury or illness. It essentially provides for you financially if you become permanently disabled due to an accident or illness and become unable to work.

What Does TPD Insurance Cover?

TPD insurance will pay you a lump sum if you become completely and permanently disabled due to illness or injury. It is important to note that each insurance company will have varying definitions on what qualifies as ‘totally and permanently disabled’. 

Additionally, the insurance may cover you for your “own” occupation or the job you had before your disability, which is more expensive and is typically available outside of superannuation. It can also cover you for “any” occupation, which means you’re unable to work again in any job befitting your education, training, or experience. Although it has a higher threshold to claim, this cover is cheaper, which means it is less likely to payout.

You can generally qualify for your TPD insurance payout if you meet any or all of the following criteria:

  • Permanent loss of intellectual capacity
  • Permanent loss of functional capacity
  • Inability to look after yourself such as showering, eating
  • Loss of vision and/or limbs
  • Substantial impairment to your entire body
  • Being unlikely to work in your occupation after the accident
  • Being unlikely to work in any field after the accident
  • Being unlikely to perform domestic duties after the accident

It is crucial to understand the product disclosure statement (or PDS )to know your insurer’s definition of a total and permanent disability. Be sure to speak with your insurer or financial adviser to clarify any questions you may have.

What are the Different Occupation Definitions?

Each insurer will have its own definition of how its products cover TPD. The amount of benefit you could claim also depends on how they word the definitions in their policies. Here are some of the definitions you’ll encounter:
  • Own occupation: This definition applies if you cannot work in your current field before the accident or injury. For instance, you may not be able to return to work on-site after an accident or injury if you are an electrician, but you can still work in an office or administrative capacity.
  • Any occupation: This definition refers to being unable to work in any profession after an accident or injury. If your policy employs the ‘any occupation’ definition, you may not be able to make a TPD claim unless you cannot work in any discipline at all following the accident.
  • Domestic duties: This definition covers your ability to perform household duties after an accident or injury. Domestic duties cover applies to those whose only occupation is to maintain and oversee the family home, like cleaning, preparing family meals, doing laundry for the family, shopping for groceries, and caring for dependent children.
  • Activities of daily living: If you can no longer perform the tasks categorised as activities of daily living in your policy, you can claim payable benefits on your TPD insurance. Although the activities highly depend on your policy and provider, they can include showering, bathing, dressing, undressing, using the toilet, eating and drinking, and even walking.

What is Not Covered in TPD Insurance?

If you don’t select Accident Cover, the insurer may not cover you if you suffer a TPD from a sports injury or illness. It’s important to note that this rule may apply for all types of covers, which is why it is crucial to evaluate the most suitable cover for you and the inclusions in your policy before signing it. Intentional self-inflicted injury is also typically excluded from TPD policies.

What are the Benefits of TPD Insurance?

If you become totally and permanently disabled and you have a suitable cover, you’ll likely receive a one-off lump sum payment to cover your rehabilitation costs, debts, and future costs of living. This financial safety net can give you peace of mind in a challenging time.

Remember that how much you’ll acquire highly depends on your disability, policy terms, and your claim’s eligibility.

Who Needs TPD Insurance?

If you’re considering getting TPD insurance and how much coverage to get, you’ll have to consider the expenses you must cover if you become permanently disabled and unable to return to work. These costs may include:
  • household living expenses
  • debt repayments (mortgage or credit card bills)
  • medical and rehabilitation expenses
  • retirement savings.

It’s also worth reviewing your other insurance policies to see what else they may cover. For instance, your private health insurance may provide you with sufficient coverage to pay for medical expenses.

If you have trauma or income protection insurance, it may supplement your lost income, and your super fund can hold these insurance policies for you.

What is the Cost of TPD Insurance?

How much TPD insurance costs depends on numerous factors such as:
  • your age
  • gender
  • occupation
  • lifestyle
  • medical history
  • the level of cover you intend to take out

Insurers usually offer ‘stepped’ or ‘level’ premiums.

Stepped premiums mean that the insurance company recalculates the cost of your premiums every year, generally increasing as you age due to the higher chance of a claim. On the other hand, level premiums are usually more expensive at the policy’s start, but the cost changes are not based on your age, which means it happens more slowly as you get older. 

Before purchasing TPD insurance, you’ll want to compare policies to ensure you choose the right one for you. You’ll have to check if the policy covers ‘own occupation’ or ‘any occupation’, its exclusions, the waiting periods you must abide by before you can claim, the cover’s limits, and the premiums you’ll face now or in the future. 

While a more affordable policy may have more exclusions, it may eventually become more expensive in the future, offsetting the initial savings you made. 

How to Purchase TPD Insurance?

You can buy TPD insurance from a financial advisor, an insurance broker, or straight from an insurance company.

If you are interested in purchasing TPD insurance, you’ll need to share a variety of information so the insurer can provide appropriate cover at the right cost.

Insurance companies usually ask for your age, job, medical history, family history, history of disease, lifestyle (such as being a smoker), and any high-risk hobbies or sports, like skydiving. 

If they do not ask for your medical history, that means their policy may have more exclusions or even narrower policy definitions. The information you’ll supply your insurer with will help them decide if they should insure you, how much the premiums will be, and your policy’s terms and conditions.

While it may be tempting to answer the questions in a way that tilts the application in your favour, it is crucial to answer honestly. Offering misleading answers may cause an insurer to decline a claim you’ll eventually make. 

Before purchasing TPD insurance, check with your super fund if you already hold TPD cover inside your super fund. Many super funds provide default TPD cover, making it much cheaper than buying another one directly. You can also expand your level of cover through your super fund if desired.

TPD insurance is usually available on its own, but it can also be packaged with life cover. If it is packaged and you make a TPD claim, your life cover may be reduced by the amount paid on your claim. You’ll also want to check the policy for any coverage on claims associated with COVID-19 before buying, renewing, or switching insurance.

How Much TPD Cover Should You Get?

The suitable scope of insurance you should have is contingent on your circumstances, like your financial situation and dependents. First, account for the expenses you’ll need to cover, like medical and rehabilitation costs, modifications to your home and vehicle, debt repayments, living expenses, and supporting future goals like your children’s education. 

Apart from this, think of the other funds you may have access to if you can no longer work. Determine if you can get payouts from other insurance policies, like an income protection policy, private health insurance benefits, or savings and investments. Reviewing your circumstances and finances may help you determine how much TPD cover is appropriate for your situation. 

How are TPD Insurance and Income Protection Different?

Income protection insurance often provides you with a portion of your income if you cannot work temporarily due to illness or injury. This amount may be paid as a monthly benefit and typically occurs for a specific period, known as the ‘benefit period.’ 

Some insurance companies provide redundancy insurance as optional cover on the income protection policies they offer, which pays you a portion of your income if you are employed and subsequently made redundant.

On the other hand, TPD insurance covers you only if you permanently cannot return to work due to illness or injury. It typically pays a lump sum amount, which can help you cover some or all your medical needs and outstanding debts.

How Do You Make a TPD Insurance Claim?

If you want to make a TPD claim, you must contact the entity you purchased your insurance from, which could be a broker, financial advisor, insurance company, or your super fund. You must then complete a claim form, and your insurer will ask for further information to support the claim. 

You must also provide concrete, ample evidence of your incapacity or inability to work, which will strengthen your claim and make it easier to get more coverage. An example of proof you may be asked to provide is specialist reports.

Total and permanent disability insurance can help you overcome the difficulties and obstacles posed by an illness or injury that renders you unable to return to work. While it may not cover all lost income, it is still a significant fallback you can rely on when in a pinch, especially when it is tricky to find ways to support your medical expenses while you’re out of work. 

If you’re considering TPD insurance, be sure to speak with a financial expert who can help you determine the most appropriate TPD insurance and level of cover for you.

Still not sure where to start, or want help securing the right insurance faster? 

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