Total & Permanent Disability Insurance: The Ultimate Beginner’s Guide

Total and permanent disability (TPD) is a type of insurance that covers a permanent illness or injury which will prevent you from returning to work.

TPD can provide a financial safety net to help support you and your family by paying for medical and rehabilitation costs.

Income protection insurance is different from TPD in that that income protection will only replace a portion of your income due to illness or injury.

If you’re thinking about TPD insurance, this article covers everything you need to know from premiums, policies and where you can purchase your insurance.

What TPD Insurance Covers

TPD insurance pays a lump sum should you become totally and permanently disabled through illness or injury.

Each insurer has their own definition on what it means to be ‘totally and permanently disabled’ so it’s important to check.

TPD insurance can cover you for either:

• Your own occupation – in an event that you’re unable to work in your profession again.

One thing to note about this cover is that it’s more expensive and is usually only available outside your superannuation.

• Any occupation – in an event that you’re unable to ever work again in any job suited to your education, training or experience.

Compared to the first one, this cover is cheaper but it has a higher threshold to claim. So, it’s less likely to payout. 

When shopping around, it pays to read the product disclosure statement (PDS) for any insurance cover you wish to investigate.

A PDS outlines the definitions but if you have any questions about the policy, ask your insurer or your super fund.

How To Decide How Much Cover You Need For TPD Insurance

The first thing to think about is the expenses you’ll need to cover if you were permanently disabled and unable to continue working.

Such expenses include:

• you and your family’s living expenses;
• repaying debts such as a mortgage and credit card;
• medical and rehabilitation costs; and
• savings you want to set aside for retirement.

It’s also helpful to think about what you have to pay for these costs.

These include:

• private health insurance which can help pay for medical expenses;
• trauma or income protection can help replace lost income;
• any assets or investments that you could sell; and
• what supports are available from family or friends.

All in all, the gap between the amount you have and the amount you’ll need is an approximation of how much TPD cover you may need.

Speak to a financial adviser if you need help deciding if you need TPD insurance.

What You Need To Know About TPD Insurance Premiums

There are two types of TPD premiums:

• Stepped premiums – are recalculated at each policy renewal. Stepped premiums usually increase each year based on the high chance of a claim as your age.
• Level premiums - are initially charged at a higher rate with the cost increasing over the period of the cover.

How To Compare TPD Insurance Policies

When shopping around, always compare policies to make sure you find one the best fit your needs.

Below is a list of what to check:

• if the policy covers ‘your occupation’ or ‘any occupation’;
• the exclusions;
• what the waiting period is before you can lodge a claim;
• what the cover limitations are; and 
• the premium types.

What To Disclose To Your Insurer

You should tell your insurer anything that could potentially affect their decision to provide you with TPD insurance.

Regardless of the enquiry stage - application, renewal or changing your level of cover.

Insurers need to know information about your:

• age;
• occupation;
• medical history;
• family’s medical history;
• lifestyle habits; and
• high-risk sports or hobbies such as skydiving, motorsport racing, polo competitions, etc.

The information you provide will help the insurer to decide the following:

• if they should grant you insurance cover;
• how much your premium will be; and
• the policy’s terms and conditions.

If for some reason, your insurer did not ask you about your medical history, it means that their policy has more exclusions. It could also mean that the policy has restricted definitions.

Always remember that you’re making a declaration with the information you provide.

Where To Buy TPD Insurance

You can buy TPD insurance from one of the following:

• a financial adviser;
• insurance broker; or
• an insurance company. 

You can buy TPD insurance on its own or part of a package with life cover.

However, if it’s a package, your life cover may be reduced by any amount that is paid out on a TPD claim.

As always, check the PDS or ask your insurer if you’re unsure.

Final Word:

Before you look at purchasing TPD insurance, check that you don’t have one already through your super.

Most super funds offer TPD cover by default, plus, it’s cheaper to keep this cover rather than taking out a new one.

You can always increase your level of cover through your super fund if you need to.

Have you thought about TPD insurance? Did this article help you in any way? Comment below.

Are you in need of financial advice? Phone me, Benjamin Collins on (07) 3041 1382. Alternatively, send me a message on LinkedIn.