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Total and Permanent Disability (TPD) Insurance

Most people need every bit of their income to support themselves and their family. Even when you’re young and healthy accidents can happen at any time and being physically fit does not always equate to being medically fit.

Total and permanent disability (TPD) insurance generally pays you a lump sum benefit when you are unable to work because of an injury or sickness and meet the insurer’s definition of total and permanent disablement. This once-off cash benefit can be used to pay for your medical treatments, eliminate debts and fund permanent lifestyle changes.

In this article, we explain what is TPD insurance, whether you need it, how much it costs, and how the claims process works.

TPD insurance definition

Generally, permanent and total disablement is defined as your inability to work for three to six consecutive months, solely because of the injury or illness that has left you disabled. After this waiting period, you can submit a claim and a lump sum benefit will usually be paid when you meet your insurer’s TPD definition; Any Occupation, Own Occupation, Home duties or Modified TPD.

To meet your TPD definition, you’ll generally also need to:

Life insurance companies have different TPD definitions. When comparing Total and Permanent Disablement (TPD) insurance policies, read the insurer’s product disclosure statement (PDS) and make sure you know which definition you are covered for and when they will and won’t pay a claim.

Should I have disability insurance?

Whether you need TPD cover usually depends on your financial and familial situation. If you use your income to pay your rent or mortgage, utilities and/or support your family, you usually need adequate disability insurance.
The earlier you buy insurance, the higher the probability that you’ll benefit from standard rates and affordable premiums.

Advantages of TPD cover

If you are permanently disabled and unable to work due to an illness or injury, you probably need this lump sum payment to:

Can you work after a TPD payout?

With the assistance of medical advances, you might one day be able to return to work even when a TPD claim has been paid. In such instances, you usually won’t have to repay the lump sum benefit, unless there’s evidence of fraud. However, it’s best to get legal advice from a professional as each insurance company has different underwriting guidelines.

How much TPD insurance do I need?

The amount of cover you require will depend on your personal circumstances, including your outstanding debts, your family’s ongoing expenses, a rough estimation of possible medical costs, and the ongoing income required. You will also need to consider the amount of cover you can afford.

How much does TPD cover cost?

The price you’ll pay for disability insurance depends on various factors, including your age, gender, smoking status, the amount of cover you need and your occupation.

The premium you’ll pay for total and permanent disability cover will also depend on your choice of:

Built-in benefits

Generally, TPD cover can often come with specific built-in benefits. Usually, the more benefits included in a policy, the more expensive your premium might be, however, this is not always the case. While TPD benefits differ from insurer to insurer, some common built-in benefits include:

Optional extras

Life insurance companies in Australia will often provide additional benefits for an extra fee, including:

Different TPD insurance definitions

The insurer’s in Australia generally define total and permanent disablement in one of 4 ways; Own occupation, Any occupation, Home duties and Modified TPD (Activities of Daily Living).

1. Total permanent disability own occupation

Own Occupation TPD pays a benefit if you are unable to ever work again in your specific or current profession, due to illness or injury. This type of disability insurance is more expensive because it offers more comprehensive coverage and it’s generally easier to satisfy the insurer’s definition that you are totally and permanently disabled.

2. Any occupation TPD

Pays a lump sum benefit if you are totally and permanently disabled and it is unlikely that you will ever be able to return to any occupation for which you are reasonably suited to by way of education, training or experience.

3. Home duties

Provides a benefit if you are unable to continue performing regular home duties, including cleaning the house, preparing meals for the family, doing the laundry, shopping for groceries, and caring for your dependent children.

4. Modified TPD (Activities of Daily Living)

Covers you if you are unable to perform at least, two of the five activities of daily living:

TPD insurance inside Super

If you belong to an industry super fund such as Hesta, Australian Super or Media Super you may have what is called ‘Default Insurance’ as part of your fund. Default Insurance is automatically applied to your policy and generally includes Life and TPD cover and may also include Income Protection Insurance (Salary Continuance).

However, default TPD insurance inside super may not be providing an adequate level of protection, as it is a one size fits all proposition and not tailored to meet your unique requirements.

Pros and cons of purchasing group TPD insurance inside superannuation

Are TPD premiums tax deductible?

Your TPD policy premiums may be tax-deductible to your super fund if you take it out through superannuation. Premiums for TPD cover held outside of super is not tax deductible because ATO does not view it as an income replacement.

Note: We are not registered tax agents. We encourage you to seek guidance from your accountant or a tax specialist should you need any information regarding taxes.

Common TPD insurance exclusions

It’s important to know that disability policies usually contain specific exclusions. Depending on the insurer and the policy you choose, the company may exclude injuries or illnesses that are directly or indirectly the result of:

All policies are different. Please read your product disclosure statement (PDS) for a full list of exclusions.

How to claim TPD insurance

If you’re unable to work due to a sickness or accident and are totally and permanently disabled as defined by your insurer, you should be able to claim disability benefits. The claims process usually involves contacting the insurer’s claims department, filling out the claim forms and gathering all required medical information, and then submitting everything to your appointed claims manager.

How long do TPD claims take?

Generally, you’ll need to be absent from work for a continued 3 to 6 months’ before you can lodge a valid TPD claim. The length of time you’ll have to wait for the lump sum payment generally depends on the insurer’s underwriting guidelines and how quickly you provide them with the completed claim forms and supporting documentation.

**Based on a 30-year-old, non-smoking male admin clerk, living in NSW, purchasing $1 million worth of Any TPD Insurance as at 21 November 2019 (stepped premiums).