TPD vs Income Protection

TPD cover pays you a lump sum benefit in the event you are unable to return to work due to being totally and permanently disabled. Income Protection generally provides you up to 75% of your regular monthly income if you are unable to work for longer than your waiting period due to a sickness or an accident.

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What is the difference between TPD and Income Protection insurance?

One of the key differences is in how the benefit payment generally gets used. Income Protection looks after your future expenses should you be unable to work. The lump-sum TPD (Total and Permanent Disability) amount can be used to pay off your debts or provide for any adjustments needed due to your disability.

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Cieran Murphy

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Do you need TPD and Income Protection insurance?

Your greatest asset is your ability to earn an income and provide for your family. It’s essential that you carefully review your options before choosing which insurance policy suits your unique requirements.

You might want to consider purchasing both policy types because combining TPD and Income Protection can save you money. However, if you have a comprehensive Income Protection policy with a benefit period up to age 65 or 70, you may be able to reduce the level of TPD cover you need. But, it depends on your liabilities and obligations.

Types of Income Protection

You mainly have three types of Income Protection policies:

Indemnity value

Your monthly benefit will be based on the lesser of 75% of your pre-disability income or your monthly benefit. Financial evidence that proves your income is required at claim time.

Agreed value

The monthly benefit you receive is generally fixed. You must provide financial evidence of your income at application time to justify the monthly benefit. Your monthly benefit will not reduce with any future changes in your income.

Guaranteed agreed value

This a term used by select insurers, which basically means the same as an agreed value policy. However, the insurers will only add the term ‘Guaranteed/Endorsed’ to your contract / policy terms once you have provided financial evidence to justify your pre-application income, thus confirming your monthly benefit.

Income Protection pros and cons

Advantages Disadvantages
Pays a monthly income when you’re unable to work due to sickness or injuries, ensuring you have an income to pay your bills each month. You only receive 75% of your monthly salary.
The focus is not merely on the ‘deficit’, but rather about the impact the condition will have on your ability to perform the important income producing duties of your occupation. Income protection policies are typically more expensive as they offer a very broad of coverage. Generally, any sickness or accident that keeps you off work longer than the waiting period listed in your PDS.
Covers you for short-term sickness as well as permanent incapacity. Only protects your personal exertion income. Meaning, you don’t have any regular income, you generally can’t get income protection.
Easier to claim on because you do not need to establish permanent disability. Generally, the waiting period for a claim is shorter. If you pass away while on a claim or waiting for your claim to be paid out, your policy will cease. It will generally only pay 6 times your monthly benefit up to $60,000.
Premiums are tax-deductible. Any monthly benefits paid to you needs to be declared on your tax return because the benefits paid to you are tax assessable.

TPD definitions

Make sure you are aware of the 4 potential TPD definitions and the one which pertains to you, as per your PDS:

  • Own occupation: You receive a lump sum benefit in the event you are no longer able to return to work in your own occupation due to total and permanent incapacity. Meaning, you can still receive the benefit if you’re able to work in another occupation.
  • Any occupation: Pays out if it is evident you’ll not be able to ever work in any occupation reasonably suited to your training, education or experience.
  • Home duties: Pays you a lump sum benefit if you are totally and permanently disabled and unlikely to return to normal domestic duties. For example, cooking family meals or doing the laundry.
  • Modified (activities of daily living): TPD pays out a lump sum if you are completely unable to perform 2 of the 5 normal daily activities. For example, bathing, eating and drinking or dressing and undressing.

TPD cover pros and cons

Advantages Disadvantages
You receive the entire lump sum benefit. A lump sum can be difficult to manage, especially because you need to ensure it lasts you for your entire working career and potentially longer.
A lump sum enables you to make provisions, including property and workplace adaptations. For example, modifying your car or house. Only covers you for complete and permanent incapacity/disability. The claims assessment process can be time-consuming and difficult.
Large sums insured is available. Temporary disability is much more likely to occur than total and complete disability, making valid claims difficult.
Generally cheaper than Income Protection. TPD does not account for the unpredictability of inflation and investment risk. The lump sum is based on predictions of the future, your cover amount might not be enough should you become disabled in the future.
You can enhance your policy with multiple policy options. Generally, there is no possibility of multiple disability claims.
You have a choice of TPD definition: Own occupation, Any occupation, Modified TPD or Home duties. You MUST have sustained the specific TPD definition in your policy to receive the benefit.
Premiums are deductible to your super fund if an Any occupation TPD cover is purchased through your superannuation. For policies taken out in your own name, premiums are not deductible. Own occupation definition is not available in your super fund.

Can you claim TPD and Income Protection at the same time?

Generally, yes, if you meet both your Income Protection and TPD policy definitions. However, the monthly benefit you’ll receive from your income protection will depend on your policy definition. Select policies have an offset clause for lump sum benefits paid for the same condition, which may reduce your monthly benefit accordingly.

This entirely depends on where the lump sum benefit came from and the offset clause as per your PDS.

TPD Cover is not a substitute for Income Protection insurance

If you only have an income protection policy with a short benefit period (2 or 5 years), you may need higher levels of TPD cover. Therefore, you might want to consider purchasing both types of policies. When you combine your TPD cover with your Income Protection policy under the same insurer, you can often get discounts on your premiums.

Do not hesitate to give us a call, if you need help deciding whether you should buy TPD cover or Income Protection, or both.

Published: July 17, 2019
  • TPD vs Trauma Insurance

    The pros and cons of TPD vs Trauma insurance. Discover if a Total and Permanent Disablement or Trauma policy is better suited to your unique requirements.

  • 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.

  • Modified TPD

    Not sure about Modified TPD? Learn more about this policy including when it is available, when to consider it and how you can use your benefit!

Ask an Expert?

6 Comments

  • Mr J Smith |

    Hello, I have received a TPD payout from Rest Super in 2017, My policy did contain income protection as well but I only claimed for the TPD. At the time of the claim I was somewhat confused about the process. I stopped work in 2012 but was not aware of my claim rights until 2016 as i was first advised by Rest super in early 2013 that i did not have any cover with them for either TPD or Income protection. Prior to this claim i received a TPD payout from another fund in 2013 and have been on a Disability Support Pension since early 2013. My question is can i still claim for the income protection component of the policy I had with Rest Super and if so how would or could it be paid (regular payments and if so would it be backdated or lump sum) also how would it be deemed by Centrelink and how would it affect my DSP payments and would I have to pay back centrelink for past payments? At the time of my disablement I was 54 and I am now 59 the policy with Rest Super allowed for income protection to age 60.

    • SPECIALIST
      Russell |

      Dear Mr Smith

      This is a very interesting scenario and one we see fairly frequently when the claimant was not aware of their full entitled benefits under the policy. Firstly it is generally possible to lodge an income protection claim in arrears however the longer the duration of time the more difficult the task.
      Initially I would track down all your paperwork from that time, then confirm with the underlying insurer at the time / Rest Superannuation of you situation and that you would like to potentially lodge a late claim. It would be important to understand if this is possible under the policy terms and conditions as I can imagine your policy is no longer in force.

      Secondly you will then need to provide medical evidence to support that you have continuously met the policy claim conditions under the policy for the duration of time you want to claim benefits for. The best way for you to do this is get a copy of the Rest income protection claim forms (full copy) then you can request your medical history logs from Medicare, then you can contact the relevant medical professionals listed on the Medicare file and ask them for a copy of your file. This would be a good starting point, you will then have to confirm with the claims team at Rest the additional information they may require including fully completed claims forms and potentially past tax returns to prove you have not been in any gainful occupation during the time.

      Should your back dated claim be successful I am not sure how they would make the payment to you & or the implications this would have on your past or present Centrelink payments, however I would imagine that if the salary continuance policy covered 75% of your pre disablement income it would collate to more than your previous DSP payments.

      Therefore I would contact Centrelink directly to understand any potential implications and how these payments would be treated.

  • Iain |

    Regarding TPD vs IP until 65, when would I claim IP for 5-40 years and not be eligible for TPD?

    I currently have TPD and IP for 2 years, and my wife TPD and IP until 65. I’m not sure if I should increase mine or reduce my wife’s.

    • SPECIALIST
      Anneke |

      Hi Iain,

      Thank you for asking this very important question.

      Because I don’t know you and your wife’s personal circumstances I’m not able to give you a definitive answer. However, it’s important that you focus on the key differences between TPD and Income Protection before making a decision.

      Claiming for TPD vs Income protection
      TPD is very difficult to claim for because of its conclusive definition; generally you have to be totally and permanently disabled and not be able to do ANY work. You’ll also need the written confirmation from at least two medical specialists to confirm you are indeed totally and completely disabled and unable to work in ANY Occupation.

      Income Protection pays out a benefit when you or unable to perform at least one income generating duty for a period of time. Generally, a claimable event is an accident or illness that prevents you from performing duties in your OWN occupation.

      For example, if you’re a truck driver and break your leg so badly you cannot drive for months, you will not qualify to claim for TPD, but you should be able to get a monthly benefit from your income protection policy.

      When receiving a claim for IP you are still eligible to claim for TPD if meeting the strict definition as stated in your product disclosure statement (PDS). Therefore, TPD is not a substitute for Income Protection.

      If you have comprehensive Income Protection cover you could reduce your TPD cover, however, even when you have sufficient TPD cover, it is usually not recommended that you reduce your IP because of how difficult it is to claim for TPD.

      If you require any further clarification please contact our team on 1300 135 205.

  • Jen |

    I would like to compare our current cover (Life Insurance to 1 million) and Income protection ($10,000 until 65 years of age – waiting period 90 days). I am confused whether my husband needs TPD – he owns his own business and has had cover for 10 years.

    • SPECIALIST
      Anneke |

      Hello Jen,
      Thanks so much for your question.

      Okay, let’s break it down:
      Life insurance pays a lump sum amount should your husband pass away or be diagnosed with a terminal illness.
      Income protection provides a monthly benefit if he can no longer work for a specified period of time due to illness or injury. Generally covering 75% of his monthly income.
      TPD insurance pays a lump sum if he would became totally and permanently disabled.

      Take note; these definitions may vary between life insurance companies, so it’s best to consult the relevant product disclosure statement (PDS).

      While an income protection policy may help you and your family with day-to-day living expenses, TPD cover could assist with other expenses, for example, making modifications to your home to help your husband adapt to his new circumstances or pay outstanding medical bills.

      However, as your husband is a business owner he might also want considers what will happen to his business should he become ill or injured for a long period of time. For example, who will pay the fixed costs of rent, electricity, salaries, accounting etc?

      He might want to review business expenses insurance and/or keyman insurance.

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