What Is TPD

Insurers will pay you a lump sum if you are totally and permanently disabled and unable to work again. Its similar to income protection insurance in that you will be financially taken care of if you are unable to work, although this payment will be in the form of a lump sum rather than ongoing income. Also TPD is not tax deductible. No matter how financially stable you are, an emergency fund or diverse investments can help you with short term emergencies or planning for retirement, but what if you were permanently disabled and unable to ever return to normal work, and a normal wage again? You would burn through your emergency savings pretty quickly, and once your assets and investments were sold off to pay immediate bills, you would once again be without plans or support for the future you want to enjoy.

With total and permanent disability insurance (TPD) you will be paid a lump sum amount if you are unable to work due to a disablement which is deemed total and permanent. You can then use that benefit amount to cover your mortgage repayments, pay for medical expenses which have now arisen, and provide an ongoing income for your family. If you are between 17 and 59 you can usually apply for TPD insurance, either as part of a term life insurance policy, or as separate coverage. There are two types of total and permanent disability insurance, one which covers any occupation and is available for workers in any industry or employment type, and the other which is called own occupation cover and is available to those in professional or clerical occupations only.

How does Total and Permanent Disability Insurance Work

Total and permanent disability insurance allows you to maintain a quality of life for yourself and your family if you are permanently disabled. When you think about the changes which would occur in every aspect of your everyday life if you suffered a permanent disability, being able to maintain some normalcy, and not having to worry about finances can make TPD insurance an investment worth considering.

If you are permanently disabled and unable to work, not only will your regular bills and expenses need to be paid, but there are likely to be additional costs such as medical bills, specialist treatment or medications, modifications to your home and possibly even a series of operations. That is where a lump sum payment from your TPD insurance cover can help, as part of a life insurance package or worker’s compensation benefits.

A TPD insurance policy will generally cover you if you suffer an illness or injury which prevents you from working in your regular occupation, for which you have studied and trained. The level of disability required for a lump sum payment to be made on a claim can depend on your occupation, for example if you are a surgeon, you may be considered to be permanently disable if you lose the use of one hand. The amount of the lump sum payment will depend on the level of cover you choose, and the premiums you can afford to repay. At the same time, a claim on your total and permanent disability insurance can usually only be made once, and can make your death cover benefits void. Therefore, you will need to choose a lump sum payment amount which will allow you to live in comfort indefinitely, in case you are unable to secure any other forms of personal insurance.

If you already have a life insurance or accident insurance policy, total and permanent disability insurance can often be easily added to these policies, and often at a discount for using the same provider, or alternatively you can apply for a standalone policy. Life risk insurance is a competitive industry and while this can mean you are able to secure a great deal on your premiums, don’t forget to look for the most comprehensive TPD policy and the widest range of risk coverage so that you can be sure you and your family are protected.

Who is Total and Permanent Disability Insurance Best Suited To?

With so many different types of personal risk insurance policies, you may be wondering if TPD is something you need to be protected against. To help you decide whether you need to include TPD cover in your life insurance plans, consider how you would support your family if you were permanently disabled, unable to work and required ongoing, expensive medical treatment. If there are people who depend on you as the breadwinner of the family then a lump sum payment from a total and permanent disability insurance policy can make a difficult time easier financially at least.

Consider how you would meet your current bills and expenses if you were suddenly unable to work. How would you be able to cover the day to day costs of living, maintain a lifestyle for you and your family, as well as cover additional medical bills and rehabilitation costs? If you don’t think you or your dependents would be able to cope without your income, and since you are still alive there are no life insurance benefits, then you need to start comparing the features and policies of TPD insurance now.

Features of Total and Permanent Disability Insurance

While you can add TPD insurance to your existing life insurance policy, it is a very different type of cover. For example, life insurance will pay a benefit to your beneficiaries in the event of your death as long as the death is not the result of suicide within the first 13 months. You can obtain life insurance through your super fund which can make the policy more affordable and tax effective, but if you change jobs or stop working your coverage can lapse.

You may also have some form of income protection which pays up to 75% of your salary if you are unable to work because of an accident or illness. You can often choose an agreed income value or have your benefits calculated on an average of you income over a 12 month period. Income protection insurance can also require you undertake a medical test and disclose any health issues you have to accurately calculate your premiums. You will also need to find out how you are assessed when you are unable to work, as well as waiting periods and benefit periods.

While life insurance and income protection insurance are important products, they do not offer the same protection and benefits as TPD insurance. When choosing a TPD insurance policy, make sure you look for a policy which comes with guaranteed insurability so that your insurance company cannot cancel your policy unless you cease payment, so you are still covered if a health condition arises in the future.

You will also need to compare the definitions of total and permanent disability used in your insurance policy, as disability is usually defined as the loss of two eyes, arms or legs, or the absence from work for at least six months due to an accident or illness, without expecting to return. In this instance you must be permanently disabled and unable to return to work, whereas income protection insurance will only pay benefits temporarily, for the time period specified in your policy.

In some cases the lump sum payment available with TPD insurance can convert to a loss of independence payout, based on the insured’s ability to care for themselves. As part of a total and permanent disability insurance policy:

• You can be covered for ‘any’ occupation or ‘own’ occupation employment definitions.
• There can be a maximum entry age which is usually 60 years old, where you will pay a stepped premium and receive decreasing cover. To qualify for level premiums you often have to apply before you are 55 years old.
• Policies often expire at 65 years old, when they become loss of independence insurance. If you are already paying level premiums, at 65 you may then have the option to convert to a stepped premium.

Feature of Total and Permanent Disability Insurance Through Superannuation

In some cases you can use your superannuation structure for insurance purposes where your insurance policy is owned by a trustee of an eligible super fund and you become a contributing member of that fund. Your contributions are then used by your trustee to pay your insurance policy premiums and in this situation these premiums are often tax deductible.

An eligible superannuation fund could also be a self managed super fund, and if you are a member of more than one super fund, you can have your TPD insurance provided by one fund, and use the other to build funds for your retirement. Superannuation funds can operate insurance policies for:

• Term life insurance, or death cover.
• Total and permanent disability insurance.
• Income protection insurance.
• Critical illness insurance, or trauma insurance.

You can only obtain TPD insurance through your super fund if the fund also provides you with death cover. If you are interested in setting up your total and permanent disability insurance through your superannuation fund or self managed super, consider whether it could be a benefit to you with:

• Tax deductible premiums. When your super fund manages your TPD insurance the premiums paid the costs of the insurance cover come from tax deductible contributions to the fund, or from employer contributions, however, outside of a super fund there are no tax deductions allowed for death and permanent disablement cover.
• Salary sacrifice. You can nominate a smaller take home pay amount to drop you into a lower taxed income bracket and have your employer directly contribute to your super fund, and in turn your insurance.
• Personal and government contributions. You can also continue to make your own contributions to your super fund, and are still eligible for government co-contributions which can both go towards your insurance cover.
• Benefits can be tax free. Death benefits paid from your super fund managed insurance policy are tax free when paid to the beneficiaries of your policy. A portion of TPD benefits are also tax free.
• Increased cash flow. You don’t have to worry about finding money each month for your insurance premiums because they are paid in your pre-tax dollars. This also means there is less chance of your policy lapsing and you being uninsured.

At the same time, make sure you consider the disadvantages of organising total and permanent disability insurance through your super fund:

• Insurance premiums can eat into your investments. The cost of the insurance is included in the superannuation contribution cap which means the more insurance you have the less funds there are available for investments.
• Benefits are paid to your trustee. When a successful insurance claim is paid, it is paid to the trustee of the super fund and only they can release the benefits if you meet the conditions of release. The trustee can then use beneficiary nominations, your Will or their own discretion to determine who will receive the benefits.
• ‘Own’ occupation TPD insurance can be limited. Your trustee may be unable to claim a tax deduction for your premiums or may be unable to release your benefits in some circumstances, if for example you perform work duties.
• TPD benefits are tax free outside of superannuation. If you are considering running your insurance through your super fund to save on tax, benefits paid for total and permanent disability insurance claims are usually tax free outside of superannuation too.  

Steps to Compare Total and Permanent Disability Insurance

With so many different providers offering TPD insurance, it is essential you know what to look out for when comparing policies to ensure you are getting the best deal possible.

• Consider How Much Cover You Need: Most financial advisors recommend calculating your average annual income by 10-13 and then factor in all of your debts, loans and your mortgage. If your children are attending a private school you also like to factor in this to the equation.
• An Insurance Company with Financial Solidarity: When comparing insurance providers it is best to go with a known provider that is recognised in the industry and that has an A, AA, or AAA rating.
• Compare Premiums: Consider whether you would like to pay your premiums either monthly or anually. Consider your own financial situation and spending habits to help you determine the best option.
• Compare the Different Features on Offer: Look out for special features including the ability to take out a policy with your spouse, free child cover and funeral advancement.
• Watch out for Any Exclusions:Make sure you are not being shortchanged by your provider and that there is adequate coverage in place. Be especially weary of term insurance that may appear significantly cheaper when compared to other policies.

How to Apply for Total and Permanent Disability Insurance

Now that you know the features and benefits of total and permanent disability insurance we are able to start obtaining and comparing quotes from a range of insurers. Keep in mind that if you already have insurance policies with one provider, they may be able to include TPD insurance for a slight increase in your premiums, or offer a discount for multiple products and we can help ensure that you get the most appropriate policy that suits your needs and benefits.