What is Total and Permanent Disability insurance

3-minute read

Whether or not to take out TPD insurance is a matter of individual circumstances and priorities.

It’s important to note that the claim requirements for TPD insurance can differ significantly depending on the cover that is held. Therefore, it’s crucial to understand the terms and conditions of the insurance policy before making a decision.

TPD insurance benefits

Complementing other forms of insurance, TPD (Total and Permanent Disability) insurance plays a crucial role in creating a comprehensive life insurance portfolio. Unlike other types of life insurance that primarily cover death, specified serious illnesses or injuries, and temporary incapacitation preventing work, TPD insurance offers a potential safety net for individuals facing permanent disability due to illness or injury. In such cases, TPD insurance may provide a lump sum payment, where the insured is unable to work.

In the event of Total and Permanent Disability (TPD), policyholders receive a lump sum payment through TPD insurance, with coverage options for any occupation, their own occupation, or Activities of Daily Living (ADL). The specific definition of TPD applicable to the insured person's policy is outlined in the insured’s policy.

The flexibility of the lump sum payment empowers the insured to allocate the funds according to their needs. This may involve actions such as debt repayment, home modifications for accessibility, and contributions towards medical expenses, including ongoing rehabilitation. By easing the financial strain associated with permanent illness or injury, TPD insurance not only provides financial support but may also contribute to peace of mind for the policyholder.

TPD insurance extends beyond work-related injuries, unlike workers' compensation, which primarily covers workplace incidents. TPD insurance offers coverage for a wide range of injuries and illnesses leading to total and permanent disablement, irrespective of their origin. It is crucial to note that the terms and conditions of TPD insurance can differ among insurers. Therefore, reviewing the Product Disclosure Statement is essential to comprehending the coverage's scope, limitations, and any potential exclusions that may be applicable.

Determining TPD insurance amounts

What should be considered?

The amount of TPD cover is contingent upon individual circumstances and priorities. Consider the following expenses when determining the appropriate TPD coverage:

• Outstanding debts
• Replacement of lost income
• Potential housing modifications needed for rehabilitation or disability
• Day-to-day living expenses
• Children's education expenses
• Reskilling costs
• Evaluate existing TPD coverage within superannuation.

After establishing the initial figure, it’s worth exploring potential reductions by examining any existing coverage already in place or identifying assets that could potentially be sold.  

Structure of your TPD insurance cover

There are various ways to customise TPD cover to align with specific needs, budget constraints, and individual circumstances. TPD insurance can be organised either as a stand-alone policy or as part of a linked policy, commonly referred to as a rider benefit. This linkage could be with a life insurance policy offering death and/or critical illness benefits.

In the case of a stand-alone policy, it operates independently of other life insurance policies. A claim made on a stand-alone TPD insurance policy does not directly affect the benefit amount or the ability to make claims on other life insurance policies. However, it's important to note that stand-alone TPD insurance policies typically come with a higher cost compared to the same TPD coverage integrated into a linked policy.

Making a TPD claim

To initiate a TPD claim, meeting eligibility criteria is essential, involving adherence to the applicable occupation definition and policy definitions of permanent disability. This often requires presenting supporting medical evidence to the insurer. Actively engaging with the TPD insurer throughout the claims process can facilitate the submission of all necessary documentation, potentially streamlining the processing time for the claim.

Integral to financial planning and risk management, Total and Permanent Disability cover plays a crucial role. By offering a lump sum amount, TPD insurance serves as a valuable resource, helping to alleviate the financial strain associated with unforeseen circumstances life may present.