TPD insurance pays you a lump sum if you become totally and permanently disabled because of an illness or injury and you are unable to work. This could go towards covering medical and rehabilitation costs and everyday living expenses, as well as to further pay off debt such as a home loan or personal loan.
The definition of “total and permanent disability” varies between insurers. It will typically cover you if you are unable to work either in your ‘own occupation’ or ‘any occupation’, according to ASIC’s Moneysmart.
Under the ‘own occupation’ definition, you are generally covered if you are unable to work again in your usual occupation. This type of cover is usually more expensive and is typically only available to buy outside of superannuation.
Under the ‘any occupation’ definition, you must be unable to work again in any job suited to your education, training and experience. This cover can be cheaper because it may be more difficult to meet the requirements for a successful claim.
The appropriate amount of cover for you will depend on your personal circumstances, including your financial situation and whether you have any dependants. Consider what expenses you would need to cover, such as:
As well as this, consider what other funds you would have access to if you are unable to work. For example, would you get payouts from other insurance policies such as an income protection policy, gain any private health insurance benefits or have savings and investments to rely on? Thinking about your personal circumstances and finances may help you to decide on how much TPD cover you should have. You may also choose to seek professional financial advice to support you with your planning and decision-making.
There are several ways you can buy TPD insurance. Firstly, you can apply for cover through your super fund. Many super funds automatically provide members with life insurance and TPD insurance, so it’s worth checking if you have any existing cover. Read more about the pros and cons of having insurance within your superannuation.
You can also apply for cover outside of super through an insurance company, a financial adviser or an insurance broker. This may be worth considering if you would like ‘own occupation’ cover.
You can buy TPD insurance as a stand-alone policy or you can link it with life insurance cover. Generally it will be more cost-effective for you to purchase TPD insurance as part of a life insurance policy, rather than as a stand-alone product. With linked covers, Moneysmart says your life insurance cover may reduce by the amount paid out from a successful TPD claim. However, many policies offer ‘buy-back’ options, which allow you to reinstate the original life insurance amount after a period of time.
While Canstar does not currently compare TPD policies, we do compare life insurance and income protection policies.
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The cost of TPD insurance can vary depending on factors such as your age, gender, occupation, medical history, lifestyle and the level of cover you take out.
Insurers will typically offer either ‘stepped’ or ‘level’ premiums. With stepped premiums, the cost of your premiums are recalculated each year and will typically increase as you get older. With level premiums, they will generally be more expensive initially, but they will not increase as you age.
Income protection insurance usually pays you a portion of your income if you are temporarily unable to work due to illness or injury. Income protection can pay this as a monthly benefit and usually only pays benefits for a certain period of time, known as the ‘benefit period’.
Some insurers also offer redundancy insurance as optional cover on their income protection policies. This typically pays you a portion of your income if you are employed and are made redundant.
In comparison, TPD insurance usually covers you if you are permanently unable to return to work due to illness or injury. It also usually pays a lump sum amount, which may be useful to cover some or all of your immediate medical needs, as well as to help clear outstanding debts.
To make a TPD claim, you’ll need to contact whoever you purchased the insurance from. This could be the insurance company, your super fund, a financial adviser or a broker.
You’ll need to complete a claim form and your insurer will ask you for information to support the claim. You’ll typically need to provide evidence of your incapacity or inability to work. For example, you may need to provide specialist reports. For more information, read our article about making a life insurance claim.
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