What is TPD Insurance?
Total & Permanent Disability (TPD) Insurance can provide a financial safety net to help support you and your family, and pay for medical and rehabilitation costs. It provides a lump sum if you become totally and permanently disabled because of illness or injury.
Your own occupation or any occupation
The definition of TPD varies between insurance providers. It can mean you are disabled to the extent you will be unable to work again in either your own occupation or in any job.
- Your own occupation: You’re unable to work again in the job you were working in before your disability. This cover is generally more expensive and is only available outside super.
- Any occupation: You’re unable to ever work again in any job suited to your education, training or experience. This cover is generally cheaper but has a higher threshold to claim, so is less likely to pay out.
Always read the product disclosure statement (PDS) so you know how your insurer defines a total and permanent disability.
What it can be used for
If you are permanently unable to return to work it can be useful to have a lump sum of money to cover your immediate medical needs as well as to clear any outstanding debts. As a basic guide, TPD Insurance may be used to:
- Provide a lump sum for immediate and ongoing medical needs
- Pay off any personal debts or a mortgage
- Make modifications to your home or transport modifications due to your disability
How much cover you will need
When deciding if you need TPD Insurance and how much, think about the expenses you will need to cover if you were permanently disabled and unable to work. These could include:
- Living expenses for you and your family
- Repaying debts such as a mortgage or credit card
- Medical and rehabilitation costs
- Savings you want for retirement
It is important to also think about what you already have that could help pay for these costs including any existing insurances, potential super cover, savings, investments and support from family and friends. The appropriate amount of cover for you will depend on both your family and financial situation.
Cover through Super or Life Insurance
It’s important to check if you already hold TPD Insurance through your super. Many super funds offer default TPD Insurance and you can customise the level of cover if you need to.
TPD Insurance can be bought on its own or packaged with Life Cover. If it’s packaged, your Life Cover may be affected by a TPD claim so always check the PDS.
Stepped vs level premiums
You can generally choose to pay for TPD Insurance with either stepped or level premiums. Your choice of premiums has a significant impact on how much your premiums will cost now and in the future.
- Stepped premiums: These are recalculated at each policy renewal. These usually increase each step period based on your age. When taking out a policy you usually have the option to set the stepped frequencies (e.g. stepped every 1, 3, 5 years).
- Level premiums: These generally charge a higher premium at the start of the policy, but changes are not based on your age so cost increases happen more slowly over time.
Before purchasing TPD Insurance it is important to compare policies to make sure you get the right one for you. It is important to check if the policy covers ‘your own occupation’ or ‘any occupation’. It’s important to consider:
- Waiting periods before you can claim
- Limits on cover
- Premiums – now and in the future.
- Tax deductibility – If cover is held within superannuation, these premiums are tax deductible against the fund’s income. If held personally, they are not.
Information you will need to provide
Your insurer will need to know anything that could affect their decision to insure you when you apply, renew or change your level of cover. Insurers usually ask for information about your age, job, medical history, family medical history and lifestyle. They will use this information to determine if they should insure you, how much your premiums will be and the terms and conditions of your policy.