Total and Permanent Disability Insurance

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.

Advantages of TPD cover

If you are permanently disabled and unable to work due to an illness or injury, you’ll typically be able to use the lump sum payment to:

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:

Definitions in TPD

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. 

Typically, insurers define total and permanent disablement in one of 4 ways; Own occupation, Any occupation, Home duties and Activities of Daily Living.

• Own occupation: Typically 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 generally more expensive because it offers more comprehensive coverage.
• Any occupation TPD: Pays a lump sum benefit if you are totally and permanently disabled and unlikely to return to any occupation for which you are reasonably suited to by way of education, training or experience.
• 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
  • caring for your dependent children.
• Modified TPD (Activities of Daily Living):Generally covers you if you are unable to perform at least, two of the five activities of daily living:
  • Eating and drinking
  • Using the toilet.
  • Dressing and undressing.
  • Showering or bathing.
  • Unable to move from your wheelchair or bed or moving without the help of a walking aid or wheelchair.

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 super-linking.

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:

Partial benefit

Typically pays 25% of your sum insured up to $500,000, if you suffer the loss of one limb or loss of sight in one eye.

Future insurability benefit

This benefit allows you to increase your level of cover without supplying additional medical information when a significant life event occurs. For example, getting married or buying a new home (principal place of residence), increase in mortgage, the birth of a child or divorce. However, it’s important to note that this varies depending on who you’re insured with.

Financial advice benefit

Will reimburse you for the cost of obtaining advice from a financial adviser, up to a specific amount ($2,000 – $5,000, depending on the insurer).

Premium freeze option

This option is generally a built-in benefit that comes with your policy. It allows you to freeze your premiums which means that instead of the premiums increase each year on stepped premiums the benefit amount reduces instead.

Indexation

To guard your policy against inflation and keep up with rising prices, the sum of money you are insured for will either increase by a predetermined percentage (usually between 3-5%) or in line with CPI annually.

Interim cover

The interim cover benefit provides a lump-sum payment should you become totally and permanently disabled as a result of an accident during your policy assessment. It generally pays out the lesser of $500,000 or your sum insured applied for.

TPD insurance and tax

When it comes to TPD insurance, tax is a factor that you need to consider because there are several different ways it can affect your pay-outs and premiums. Generally speaking, TPD insurance premiums are not tax deductible and you typically won’t need to pay any taxes on a lump sum benefit.

However, if you have TPD inside super and need to claim total and permanent disablement before your preservation age, you may have a tax-free segment called ‘ Super Disability Benefit’, but the remainder of your benefit will usually be taxed when drawn as a lump sum.

It’s important to understand how different tax rules could affect your policy when it comes time to claim.

*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:

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

What to do if you need to claim

Should you become ill or are injured and unable to work, you’ll generally need to meet your TPD definition, you’ll generally also need to: