If you were to never work again, can Total Permanent Disability (TPD) insurance provide valuable peace of mind in terms of supporting both yourself and your loved ones into the future?
According to the Australian government, 5.7% of Australians in 2018 had a profound or severe disability. Do you genuinely need TPD insurance? Are your income and savings enough to cover your living expenses?
This article provides some basic guidance on TPD insurance, including what TPD insurance is, what it covers, how it works, and details regarding how TPD insurance premiums are calculated.
Our financial services guide also discusses other benefits included in TPD insurance, how to buy TPD insurance, how much cover you can apply for, and information you need to tell your insurer.
What Exactly Is TPD?
A permanent illness or injury can make it challenging or impossible to return to work. Total and Permanent Disability (TPD) insurance can help.
This type of insurance cover can help support you and your family (including dependents) financially in the event that you suffer a permanent illness or injury. It can also cover your medical and rehabilitation expenses.
TPD is one of many life insurance products available to Australians. Other types of life insurance products and their key features include:
Life Cover: Lump sum payout if you pass away
Trauma Insurance: Cover after being diagnosed with a major illness
Income Protection Insurance: Pays a partial portion of your income if you cannot work due to injury or illness
What Does TPD Insurance Cover?
TPD insurance pays policyholders a lump sum should they become completely and permanently disabled due to an injury or illness, including a terminal illness.
Different insurers define TPD differently. Generally, a person is considered permanently disabled if they’re not expected to recover. In this case, they would fit the common definition and qualify for cover.
A total disability, by definition, is one that’s severe enough to prevent someone from working. A partial disability, like the loss of a finger, can qualify for a limited benefit, affecting an individual’s capacity to work for a period of time.
TPD insurance can cover you for either:
Your Own Occupation: You can’t work again at the same job before your disability. This cover is more expensive and typically only available outside superannuation.
A superannuation fund is a method of saving for retirement. An employer must pay a percentage of an employee’s earnings to their super account.
Any Occupation: You can never work again in any job suitable for your experience, training, or education.
Always read critical documents such as the Product Disclosure Statement (PDS) and other disclaimers prior to purchasing a TPD policy.
The relevant product disclosure statement (PDS) explains how your insurer defines “total and permanent disability,” providing valuable knowledge of the processes involved when you need to make a TPD claim.
You should contact your insurer or superannuation fund trustee with any questions regarding your life insurance policy.
A disclaimer explains what cover is denied and any exclusions that may be relevant to the policy. It can also contain information such as any waiting periods that may be applicable to your coverage.
Disclaimers often include exemptions, including pre-existing medical conditions.
Important Details You Need to Know about TPD Insurance
When selecting a TPD insurance policy as part of your broader financial plan, it is important to consider the following:
What’s Not Covered
Insurers may not pay out claims when the insured:
- Makes a claim due to self-inflicted injury
- Already has a life insurance policy with a terminal illness benefit
- Does not meet eligibility when TPD insurance isn’t linked to life insurance
When TPD Insurance Ends
TPD cover can end after particular events, including:
- Policy anniversary before the insured’s 65th birthday
- Written request to cancel a policy or plan
- Policy cancelled due to non-payment of premiums
- Fraudulent claim made
- Full benefit amount paid
You can make a TPD claim before your cover ends, but once the coverage has ended, making a claim will generally not result in a successful claim
Loadings and Exclusions
TPD policies may also be subject to conditions, including:
Premium Loading: Meaning, you pay a higher premium for insurance.
Exclusion: You won’t be covered if you suffer an excluded medical condition or participate in an excluded activity or pastime.
It is critical that you review all eligibility requirements before applying for a TPD policy.
Tailoring Your Plan
When tailoring your TPD insurance policy, you need to decide whether you prefer stepped or level premiums. Stepped premiums typically increase every year, while level premiums stay the same throughout the term.
It is also possible to add additional benefits to your policy, including;
- Inflation protection
- Guaranteed future insurability
- Premium freeze
- Financial planning
- Grief support
An insurance calculator, often found on the website of the insurer, can help estimate your monthly premiums.
How Does TPD Insurance Work Essentially?
The amount of cover you purchase determines how much money you intend to receive. You can use the money for medical expenses, rehabilitation costs, home improvements, or car modifications.
Determine how much coverage is needed if you are no longer able to work. Then, pay a regular premium.
Your premium’s cost is based on several factors, including your:
- Work Industry
- Medical history
Premiums, terms, and conditions vary for indifferent TPD policies. You can also add benefits like business, specialist, and employee benefits.
To determine the level of coverage required, it would be best to speak with one of our financial advisers prior to purchasing a TPD policy. An adviser can take steps like reviewing an insurer’s Target Market Determination (TMD). The TMD describes for whom the product is suitable.
An adviser can also supply general information about other insurance options in Australia.
Ensure that advisers have an Australian Financial Services License (AFSL) in addition to an Australian Business Number (ABN).
TPD Insurance Premiums and Benefits
When buying TPD insurance, you have two main options in terms of premiums:
Stepped Premiums: Recalculated at every policy renewal, these premiums usually increase every year due to a higher risk of a claim as the life insured ages.
Level Premiums: Premiums charged are higher at the beginning of a policy. While changes to premiums aren’t age-related, they increase gradually over time.
The premium type you select will have a significant impact on the cost of premiums, both now and into the future.
Other Benefits Included in TPD Insurance
The benefit amount of TPD cover is based on the applicable TPD definition.
Insurers can also offer:
- Advanced payment benefit
- Child’s critical illness benefit
- Death benefit
- Financial planning benefit
- Grief support benefit
- Inflation protection benefit
- Long-distance accommodation benefit
- Premium freeze benefit
Why You Really Need TPD Insurance
Consider the cover amount you’d need. Think about your expenses if you were unable to work after becoming permanently disabled, including:
- Living expenses (for you and your family)
- Repayment of debts like mortgage, auto, or credit card
- Medical and rehabilitation costs
- Savings you need for retirement
Also, consider alternative sources that may be able to assist with covering costs. They can include:
- Private health insurance for medical expenses
- Trauma or income protection cover to replace lost income
- Savings or investments
- Support from family and friends
TPD cover can bridge the gap between how much you have and how much you need.
Our knowledgeable, experienced, and friendly financial advisers can help determine if you need TPD insurance and the level of coverage you require, taking into consideration all of your needs and circumstances.
How to Buy TPD Insurance Policies
Prior to purchasing a TPD insurance policy, check with your super fund if you already hold a similar policy.
Most superannuation funds offer default TPD cover that’s less expensive than purchasing it directly. You can use your super fund to boost your level of cover if necessary.
Also, you can purchase TPD insurance from:
- An insurance broker
- A financial adviser
- An insurance company
You can purchase standalone TPD insurance or bundle it with life cover. Check for the appropriateness of either option.
You can also review the policy’s PDS or ask your insurer about this issue.
How Much TPD Cover Can I Apply for?
The amount of cover you can apply for depends upon your employment status. Insurers can provide up to $3 million of TPD cover for full and part-time employees. Meanwhile, casual employees can receive up to $1 million in TPD cover.
How Much Do TPD Benefits Cost?
A TPD benefit can be substantial and help ease the financial burden following the difficult times of a disability. The benefit depends on the terms of the insurance cover.
An insurer can pay a TPD insurance benefit as a lump sum payment if you have a successful claim. This action operates similarly to your beneficiaries receiving a payout for a death cover after your passing.
The insurer must evaluate your TPD claim based on your personal circumstances.
The insurer can then determine how much you can claim for your TPD payout. Meanwhile, TPD lawyers can help explain your entitlements.
What You Should Tell Your Insurer
Inform your insurer of any information that could affect their decision about providing you with TPD insurance coverage. Supply this information when you apply, renew, or alter your level of cover.
Insurers tend to request information regarding your:
- Job or occupation
- Medical history
- Family history (for example, history of disease)
- Lifestyle (such as smoker or non-smoker)
- High-risk hobbies or sports (like skydiving)
In some cases, you won’t be asked about your medical history. Also, your policy may have narrow policy definitions or more exclusions.
The information you apply helps insurers to determine:
- Whether they should cover you
- The amount of your premiums
- Your policy’s terms and conditions
Always answer any questions honestly. Supplying misleading answers can cause an insurer to decline your insurance claims.
Experiencing a complete or lifelong disability can be a challenging and life changing experience for you and your family, affecting your everyday life and long-term financial security.
Preparing for this should include securing income to help cover living costs, debts, and medical expenses. Find the best and most suitable options to help support you and your family into the future.
Need any assistance with finding the best TPD cover for your personal needs? Enquire now!
1. Disability, Ageing and Carers, Australia: Summary of Findings
2. Total and permanent disability (TPD) insurance
3. How life insurance works
4. Waiting period
5. How super works
6. Total and permanent disability insurance