TPD vs Trauma Insurance
If you’re wondering whether a Total and Permanent Disability (TPD) or Trauma insurance policy will suit your requirements, you might want to first consider the differences between these two policies, as well as their respective pros and cons. However, either policy is not a substitute for the other as they offer different benefits.
Published October 18, 2021
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Although Trauma insurance and Disability insurance may seem similar, their benefits, price and purpose are different.
A Trauma benefit is generally paid as a lump sum when you’re diagnosed with a critical illness listed in your PDS, for example, cancer. Total and Permanent Disablement (TPD) provides a lump sum benefit if you become totally and permanently disabled, as per your TPD definition, because of a sickness or accident.
What’s the difference between TPD and trauma insurance?
| Policy information | TPD Cover | Trauma Insurance |
|---|---|---|
| Maximum sum insured | $10 million | $5 million |
| Death cover included when purchased as a stand-alone policy | Yes, from select insurers | Yes, from select insurers |
| Built-in benefits |
|
|
| Optional benefits |
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| Premium options | Level, Stepped or Hybrid | Level, Stepped or Hybrid |
| Availability through Super | Yes, but only for Any occupation | No |
What is TPD insurance?
Total and permanent disablement insurance generally pays out a lump sum benefit if you become totally and permanently disabled, as defined in your PDS, due to an injury or illness, and can’t work for 3 to 6 consecutive months, depending on your insurer.
However, you need to be disabled to such an extent that it corresponds with your TPD definition before you will be eligible for the lump sum benefit. The 4 types of TPD definitions usually include:
Own occupation
Pays a benefit if you are unable to ever work again in your specific or current occupation, due to illness or injury.
Any occupation
Provides a benefit if you are unable to ever work in ANY occupation for which you are reasonably suited to by way of training, education or experience.
Home duties
Unable to ever again undertake ALL the regular domestic duties, like cleaning the house, buying groceries and preparing meals for the family, doing the laundry or caring for your dependent children.
Modified TPD (Activities of daily living)
Pays a benefit if you’re unable to perform at least 2 of the 5 activities of daily life; eating and drinking, dressing and undressing, using the toilet, showering and bathing, and unable to move from your bed or wheelchair without the help of a walking aid.
TPD insurance pros and cons
| Pros | Cons |
|---|---|
| Pays a lump sum benefit. | Only covers total and permanent disablement. |
| Choice of definition including Any or Own Occupation, Modified TPD or Home Duties. | To receive a benefit, you must meet the specific definition of total and permanent disablement according to your policy and PDS. |
| Ability to enhance your policy with multiple policy options. | Generally, all policies convert to Modified TPD at your age 65 or 70. |
| Large sums insured available. | Total and Permanent disablement needs to exist for at least 3 to 6 months, depending on the insurer, before a benefit will be paid. |
| Premiums are generally tax deductible if the cover is taken through your superannuation | Own Occupation definition is not available through your super fund. |
Critical illness insurance definition
Trauma Insurance, also known as critical illness insurance, pays a lump benefit if you are diagnosed with a critical illness listed in your PDS. It can cover between 30 and 60 conditions, for example, cancer, stroke and heart attack.
Take note: There is a 90-day waiting period from when your policy commences. If diagnosed with a critical illness, you need to survive for at least 14 days.
Depending on the insurer, you’ll generally have a choice between a Standard or Plus Trauma insurance policy. Standard policies usually cover 30 to 44 core critical illnesses, while the Plus option typically includes an additional 10 to 15 less critical conditions, for example, early stage prostate cancer, early stage melanomas or early stage breast cancer.
Advantages and disadvantages of trauma insurance
| Advantages | Disadvantages |
|---|---|
| Pays a lump sum benefit. | You need to meet the specific definitions of a critical illness for a claim to be paid. |
| Can cover up to 60 critical illnesses, depending on your insurer and the policy you choose. | 90 Day waiting period. |
| You can combine Trauma insurance with Life insurance. | Can be an expensive policy if choosing a stand-alone option. |
| Multiple policy options available. | Not available through superannuation. |
Frequently asked questions and answers
The price difference between critical illness vs disability insurance
The cost of your policy depends on various factors, including your age and gender, health, occupation, cover amount and premium type. However, TPD insurance is generally cheaper than trauma insurance because it’s statistically more likely for a person to suffer a critical illness, such as a heart attack, as opposed to becoming totally and permanently disabled.Do I need both critical illness and TPD insurance?
Whether you should buy both policy types depend on your specific requirements, specifically your budget, the level of risk associated with your occupation and if you have a family history of hereditary diseases. It’s best to speak with a broker to help you make an informed decision.Can you combine Life, Disability and Critical illness insurance?
Yes, generally you can have Life, TPD and Trauma insurance in one policy if held outside of superannuation. Although, it is best to check with your insurance provider. Combining cover could save you money and add an extra layer of protection. However, claiming on one of these policies will usually lower your overall sum insured. For example, if you have a total of $1 million worth of cover and claim $300,000 for Trauma insurance, you’ll only have a total of $700,000 left.
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Do I really need TPD and Trauma Insurance? Trauma insurance seems more sensible and useful. If I had a high amount insured for Trauma it would seem more likely to be able to make use of the policy.
Hi Karen.
Whether TPD or Trauma insurance will best suit you depends on your specific requirements and personal circumstances, as each policy only pays out a lump sum benefit when you meet certain claimable events. Please give us a call on 1300 135 205 and an insurance specialist will assist you in making an informed decision.
I am thinking of switching from TPD to trauma, but need to understand if you recover from any of these health issues after a certain period of time, where do I stand.eg Heart attack- can affect me if I pursue in my stressful work place or other place of work.
Hi Boris,
Great question. To address the first part of your question, Trauma Insurance covers you for a range of critical illnesses/conditions as defined in the product disclosure statement. For you to get your benefit amount paid, you would generally need to suffer a traumatic condition as listed in the PDS, survive for 14 days and meet the other terms of the PDS, e.g. waiting periods. If you make a recovery from your condition, i.e. heart attack and you return to work, there is no requirement for you to pay it back even if you return to work a month after the event. The key point to remember here is to ensure that you meet the definition of the condition listed in the PDS.
Secondly, you would also need to be aware that generally, most insurers have a self-inflicted exclusion on their trauma insurance policies. If you need any further information, please feel free to contact us.