Total and Permanent Disability Insurance (TPD) in Australia

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.

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What is TPD insurance?

TPD is a type of insurance that provides you with financial support in the form of a lump sum benefit, should you become totally and permanently disabled due to an illness or accident, and a medical professional has certified that you are unlikely to ever work again, either in your own or any occupation reasonably suited to your education training or experience, depending on your policies definition.

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:

  • Have gone to a medical practitioner and undergone all reasonable and usual treatment, including rehabilitation for injury or sickness, typically for at least six months.
  • Provide your insurer with a certification from at least one medical practitioner that you are totally and permanently disabled. Select insurers may ask for a second medical opinion to confirm your condition.

Take note; Select insurers may choose to seek additional evidence to conclusively prove that you are totally and permanently disabled.

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:

  • Make modifications to your home,
  • Pay off outstanding debts,
  • Pay medical expenses,
  • Cover your mortgage,
  • Provide you with an income.

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:

Stand-alone vs linked vs flexi-linked

When purchasing total and permanent disability insurance the premium you pay will also be reliant on whether you buy a stand-alone policy, combine it with another insurance product or use flexi-linking.

number-1A stand-alone TPD policy is held separate from other insurance products. When claiming on a stand-alone policy, the benefit you’ll receive will not affect the benefits you have with different cover types.

number-2Combined policies, also known as linked or bundled policies, is a great way to take out affordable insurance across multiple cover types, including linking life insurance and TPD. However, when claiming on TPD, your total amount of coverage will reduce by the lump sum paid.

number-2Flexi-linking enables you to take out a combined policy but separate the ownership structure between self-owned and superannuation owned. You can link your life insurance policy that’s inside superannuation with your TPD insurance that’s held outside super. Flexi-linking might result in cheaper premium rates and more comprehensive coverage, compared to stand-alone insurance.

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:

  • Specific loss benefit: Insurer generally pays up to 25% of your cover if you suffer the loss of one limb or partial blindness, as defined in your PDS.
  • Future increase benefit allows you to increase your TPD cover after a specific event, without having to supply further medical evidence.
  • Premium freeze for stepped premium policies. Your premium will remain fixed for a period, with your cover amount reducing each year.
  • Waiver of premium while involuntarily unemployed.
  • Indexation benefit: Helps your benefit keep pace with the cost of living by automatically increasing each year. You can inform your insurer that you do not want this benefit to be activated on your policy.
  • Suspending cover for up to 12 months when facing financial difficulty. You will usually not be covered while this benefit is active.

Optional extras

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

Double TPD

Double TPD allows you to get your full life insurance amount reinstated following a TPD claim in a combined policy.

Life Cover Buy Back

Only available in a combined policy. Life Cover Buy Back allows you to get your full life insurance amount reinstated 12 months after a TPD claim is made.

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).

number-1Total 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.

number-1Any 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.

number-1Home 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.

number-1Modified TPD (Activities of Daily Living)

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

  1. Eating and drinking
  2. Using the toilet.
  3. Dressing and undressing.
  4. Showering or bathing.
  5. Unable to move from your wheelchair or bed or moving without the help of a walking aid or wheelchair.

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

Advantages Disadvantages
Premiums can be more affordable because super funds generally buy cover as part of a Group scheme. Premiums are automatically deducted from super and thus can erode your retirement savings.
You might get guaranteed acceptance without the need to provide medical information. Only Any occupation definition is available. Policies can have a wide range of exclusions and cover can be downgraded at anytime
Benefits paid to your financially dependent beneficiaries are usually tax-free. The claims process can take longer and be more complicated because you'll have to meet all the conditions of release as well as the policy terms and conditions.

Is a TPD payout taxed?

No, generally a lump sum TPD benefit is not considered income and will be tax-free. However, if you have TPD inside super and need to claim total and permanent disablement before your preservation age, you’ll have a tax free segment called ‘ Super Disability Benefit’, but the remainder of your benefit will usually be taxed at 22% when drawn as a lump sum.

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:

  • Pre-existing medical conditions.
  • Intentional self-inflicted injuries and suicide attempts.
  • Taking part in a dangerous occupation or pastimes.
  • War and hostilities.
  • Criminal activities.
  • Under the influence of alcohol or drugs

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.

Published: August 7, 2018
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  • Own Occupation

    Own Occupation Total and Permanent Disablement cover provides protection if you can no longer work in your Own Occupation.

  • Are TPD Insurance Premiums Tax Deductible?

    Yes, TPD insurance premiums are tax deductible when an any occupation total and permanent disablement insurance policy is owned by your super fund.

  • TPD vs Trauma Insurance

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Ask an Expert?

6 Comments

  • Cheryl-Sherring |

    My TPD insurance claim has been approved through AIA insurance. This has been deposited to my superannuation fund Rest, can I draw only on the insurance part of this claim without the superannuation part that Rest is still requiring documentation for ? As the insurance part of my claim is un preserved this is the part off the claim I require.

    Regards

    Cheryl lee Sherring

    • SPECIALIST
      Brett Lenertz |

      Thanks for your great question Cheryl. Generally, the process is the Superannuation Fund Trustee will require you to complete a document known as a ‘Cash Benefit Withdrawal Form’ to gain access to the benefit that you have received. This form would be then provided to the Superannuation Fund Trustee who will then confirm that you meet all the requirements for the Condition of Release of this TPD Insurance Benefit for this to be released to you. You will likely find that your Superannuation Fund will have dedicated staff that handles insurance claims that are released to your Fund and they should be able to give you some guidelines around the time frames with this occurring.

  • subra |

    Does this policy cover world wide.

    • SPECIALIST
      Russell |

      Hi Subra,

      In general Retail Total Permanent Disablement policies provide worldwide 24/7 cover, subject to underwriting at the time you take out the policy.

      If you need further assistance in finding a suitable policy please reach out to the team on 1300 135 205.

  • Keith |

    Do you have a policy for Firefighters?

    • SPECIALIST
      Anneke |

      Hi Keith,
      There is potential to get life insurance as a Firefighter, although it depends on the insurer you choose, your occupational duties and how much time you spend performing certain tasks in your occupation.

      Please reach out to our team of specialist by calling 1300 135 205 aand they can help you compare policies.

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