TPD vs Income Protection

Compare TPD and income protection insurance, two types of life insurance that can provide you with protection in case of illness or injury. While TPD insurance provides a lump sum payment for permanent disability, income protection insurance offers regular payments to replace your income in case you are unable to work. However, the suitability of each type of insurance depends on your individual circumstances.

Published May 4, 2023

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What is the difference between TPD and Income Protection?

The main difference between TPD and income protection insurance is the type of coverage they provide. TPD insurance pays out a lump sum if you become permanently disabled and are unable to work, while income protection insurance provides regular payments to replace your income if you are unable to work due to illness or injury. In other words, TPD insurance provides a one-time payment for permanent disability, while income protection insurance provides ongoing payments for temporary or permanent disability.

Factors to consider when deciding which option is right for you

What Is Income Protection?

Income protection insurance is a type of policy that offers financial assistance if you experience an unexpected loss of income due to illness or injury. Typically, this insurance covers up to 70% of your pre-disablement income, which can help you pay for your monthly expenses. The benefit payment is paid out regularly until you can return to work, no longer meet the eligibility criteria, or until the end of the policy term, as specified in your Policy Disclosure Statement (PDS).

The level of coverage needed will typically vary depending on individual circumstances. Income protection insurance could be useful for those who rely on their income to support themselves and their loved ones, especially those who are self-employed or lack significant savings or annual or sick leave to fall back on in case of illness or injury. This type of insurance can provide financial security during a challenging period and help you manage your ongoing expenses while you recover.

What is TPD insurance?

TPD insurance provides a lump-sum benefit if you become totally and permanently disabled and cannot work in your current or any other potential occupation. This type of insurance is typically paid if your disability has prevented you from working for the past 3-6 months and results from an accident or illness. The lump-sum payment can cover medical expenses, pay off debts, or provide ongoing financial support.

TPD definitions

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

Compare features of TPD and Income Protection

Income ProtectionTPD Insurance
BenefitMonthly payments up to 70% of regular incomeLump-sum payment
EligibilityUnable to work due to illness or injuryTotally and permanently disabled, unable to work in current or potential occupation
Waiting periodBetween 14 days and 2 yearsTypically 3-6 months
Benefit period2 to 5 years or to age 65Definition of TPD typically changes at age 65.
PremiumsBased on age, gender, occupation, waiting period, benefit period, monthly benefit, premium type and health statusBased on age, gender, occupation, health status, disablement definition, premium type  and benefit amount
TaxationPremiums typically tax deductible, Benefits are usually taxed as incomePremiums typically not tax deductible, Lump-sum payment is generally tax-free because it is not considered income
Use of benefitCovers ongoing expenses during disabilityCovers medical expenses, debts, or ongoing financial support

Do I need TPD and Income Protection Insurance

Your ability to earn an income is one of your most valuable assets, providing for both you and your loved ones. When choosing insurance policies, it’s essential to review your options carefully to find the ones that best meet your requirements. Combining cover like TPD and Income Protection policies could save you money, but it depends on your specific circumstances. For example, if you have a comprehensive Income Protection policy with a benefit period up to age 65 or 70, you may not need as much TPD coverage. However, it’s important to consider your liabilities and obligations and seek professional advice before making any decisions.

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

If you meet the policy definitions for both your Income Protection and TPD insurance, you can usually make claims for both simultaneously. However, the amount of monthly benefit you receive from your Income Protection policy may be affected by any lump sum payments you receive under your TPD policy. Some policies include an offset clause that reduces the monthly benefit payment by the amount of any lump sum payment made for the same condition. The specific details regarding any offset clause’s can be found in your Policy Disclosure Statement (PDS).

TPD Cover is not a substitute for Income Protection insurance

While TPD cover provides a lump-sum payment in the event of total and permanent disability, it is not a replacement for Income Protection insurance. If your Income Protection policy has a short benefit period (2 or 5 years), you may consider purchasing higher levels of TPD cover. Combining TPD cover and Income Protection insurance under the same insurer can often result in premium discounts. Therefore, it may be worth considering both types of policies to ensure you have adequate protection in the event of an unexpected illness or injury.

Frequently Asked Questions and Answers

  • Can you claim tax on TPD and income protection?

    Yes, under certain circumstances, you may be able to claim a tax deduction for the premiums you pay for income protection insurance held in your personal name typically. However, TPD premiums typically won’t be deductible to your super fund if held and funded by your super fund. implications can vary depending on the policy ownership structures and your individual circumstances, so it’s best to seek advice from a tax professional.
  • Can you have TPD and Income protection inside super?

    Yes, it’s possible to have both TPD (Total and Permanent Disability) and income protection insurance inside superannuation. Many super funds offer insurance as part of their packages, including TPD and income protection.
  • Which option is best when self-employed and unable to return to work?

    When you’re self-employed and unable to return to work due to illness or injury, income protection insurance can provide a financial safety net to help you manage your expenses while you’re unable to earn an income. TPD insurance, on the other hand, pays a lump sum if you’re totally and permanently disabled and can no longer work. The option that’s best for you depends on your specific circumstances, such as your level of savings, financial commitments, and the nature of your work. It’s recommended to seek professional l advice to determine the best option for you.

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