Total & Permanent Disability Insurance (TPD)

What is total and permanent disability (TPD) insurance cover?

TPD pays you a lump sum if you become totally and permanently disabled. The definition of total and permanent disability varies between insurance companies. It can mean that you are disabled to the extent that you will probably be unable to work again in your occupation or in any job.

Income protection insurance will help to replace a portion of your income when you are unable to work due to illness or injury, but if you are permanently unable to return to work it is also useful to have a lump sum of money to cover your immediate medical needs as well as to clear any outstanding debts. Total and Permanent Disability (TPD) insurance can be used for this purpose.

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How much TPD cover should you have?

The appropriate amount of cover for you will depend on both your family and financial situation. Your income protection policy will be your main source of ongoing cash flow so TPD is primarily to provide for medical needs and the payment of debt. As a basic guide, a TPD policy may be used to:

  • Provide a lump sum for immediate and ongoing medical needs.
  • Pay off any personal debts.
  • Pay off your mortgage.

Keep in mind that there is more to disability than just medical needs – your home may need some renovations so that you can get around in a wheelchair, a walker, or even a blind person’s cane.

Case Study:

total and permanent disability coverJesse, aged 54, is married with two adult children. He and his partner own their own home but they have a mortgage of $350,000 on an investment property.

Jesse works full-time as a psychologist, earning $75,000 per year. Jesse has income protection insurance, but he also wants peace of mind that if he were to become severely disabled and unable to work, he and his wife could pay off the investment home loan. That would give his wife the flexibility to potentially scale back her working hours to take more of a primary carer role for him.

As such, Jesse has calculated his TPD insurance needs as follows:

$30,000 – Immediate lump sum for medical costs

$350,000 – Mortgage repayment

Total – $380,000

Jesse calculates that his 75% income protection policy would then be sufficient to replace his existing cashflow.

Please note this is just an example – the needs of each person will be different. As an information provider, CANSTAR only provides general advice and does not take into account your objectives, financial situation, or needs. You should talk with a financial adviser about your specific and individual needs.

What else to consider in relation to TPD insurance

There are a range of considerations when selecting a TPD insurance policy, in addition to how much the premiums cost. A few common factors you should take into account include:

  • The definition of TPD. Check the specific definition of “total and permanent disability” with your chosen insurance company, as this can vary between providers.
  • Own occupation – or any? Some insurance policies will pay out if you are permanently unable to perform the duties associated with your own occupation, while others will only pay out if you are unable to perform any occupation to which you may be suited. Consider which of these definitions you should be insured for.
  • A linked life insurance and TPD policy? 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.
  • A buy-back option. A buy-back option is an additional benefit that can be purchased if you have a linked life insurance and TPD insurance policy. If you make a TPD claim, a buy-back option gives you the ability to re-instate your life insurance sum insured by the amount that you have claimed.

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