Total and permanent disability insurance (TPD)

Have you ever wondered what would happen if you were permanently disabled after an accident or illness and couldn’t continue to do your current job?

If you take out total and permanent disability insurance this may help provide some cover to help support you and your family financially should anything unfortunate like this happen to you.

So how does it work?

What is total and permanent disability (TPD) insurance?

Total and permanent disability insurance, known as TPD insurance, pays you a lump sum if you become totally and permanently disabled because of an illness or injury and you’re not able to work.

Depending on your policy and insurance provider, TPD insurance will typically cover you if you’re unable to work ever again, either in your “own occupation” or “any occupation”, according to the Australian Government’s Moneysmart website.

This money could go towards covering medical and rehabilitation costs and everyday living expenses, as well as towards paying off any personal debts such as a home loan or car loan.

How much does TPD insurance cost?

The cost of TPD insurance can vary depending on a number of factors such as your age, gender, occupation, medical history, lifestyle and the level of cover you take out.

Insurance providers will typically offer either “stepped” or “level” premiums.

Stepped premiums are recalculated each year and will typically increase as you get older. Level premiums will generally be more expensive initially, but will not increase as you age.

What does TPD insurance cover?

Under the “own occupation” definition for TPD cover, you’re generally covered if you’re not able to work again in your usual occupation. Moneysmart says 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 is often cheaper, but it may be more difficult to meet the requirements for a successful claim.

How much TPD cover should you have?

If you decide to purchase TPD cover, how much you choose to take out could vary based on your personal circumstances. How much you can afford to pay TPD premiums is important, as is how much you might have to continue paying them in future.

You may like to consider what expenses you’d need to cover if you were not able to work again due to an accident or illness. These expenses could include:

• medical and rehabilitation costs
• modifications to your home and/or vehicle
• paying off any debts, such as a home loan
• living expenses
• funding future goals, such as the cost of education for any children

Think about other sources of money you might have access to as well.

For example, could you get a payout from another insurance policy, such as an income protection policy? Would you get any private health insurance benefits? Do you have savings and investments you could rely on if times get tough?

Bear in mind that many Australians have TPD insurance through their super or as part of their life insurance, so before committing to a new policy it’s worth checking with your super fund and/or life insurance provider to see if you already have some cover in place, and then whether it meets your needs.

How can you buy TPD insurance?

There are several ways you can buy TPD insurance. You can apply for cover through your super fund. Many super funds provide eligible members with life insurance and TPD insurance by default, so it’s worth checking if you have any existing cover.

You can apply for cover outside of super through an insurance company, a financial adviser or an insurance broker. This may be worth considering if you want “own occupation” cover.

You can buy TPD insurance as a stand-alone policy or as part of a package with life insurance cover.

Generally it’ll be more cost-effective to buy TPD insurance as part of a life insurance policy or through your super, rather than as a stand-alone product.

With packaged cover, Moneysmart says your life insurance cover may reduce by the amount paid out on a successful TPD claim. But many policies offer “buy-back” options that allow you to reinstate the original life insurance amount after a period of time.

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What should you consider before buying TPD insurance?

If you’re considering a TPD policy, Moneysmart recommends checking:

• whether the policy covers “your own occupation” or “any occupation”
• what exclusions may apply
• what the waiting periods are
• what the limits are on your cover
• premiums – both now and in the future.

Take the time to read through any relevant documentation before you buy any financial product, including TPD cover. Consider the Product Disclosure Statement (PDS) and Target Market Determination (TMD), which should be available from the product issuer.

You might want to get some professional financial advice to help with your decision-making.

How can you make a TPD insurance claim?

Speak to your insurance provider, super fund, financial adviser or broker (whoever you purchased a TPD insurance policy from) for more information about the process for making a TPD insurance claim.

You’ll generally need to complete a claim form, and your provider will usually ask you for information to support the claim.

Be prepared to provide evidence of your incapacity or inability to work. This will usually be required for insurance purposes with this type of claim. For example, you may need to provide specialist reports.

Related: Making a TPD insurance claim

TPD insurance vs income protection: what’s the difference?

TPD insurance is different from income protection insurance.

TPD insurance usually covers you if you are permanently unable to return to work due to becoming “totally and permanently disabled” by illness or injury. It also usually pays a lump sum amount that may be useful to cover some or all of your immediate medical needs, as well as to help clear outstanding debts.

Income protection (IP) insurance could pay you a benefit if you were temporarily unable to work because you became partially or totally disabled, which could be due to illness or injury.

Income protection is typically paid as a monthly benefit, which is usually a proportion of the policyholder’s previous income and only payable for a certain amount of time. This is known as the “benefit period”.

Bear in mind that you may already have both TPD and IP insurance as part of your superannuation or an existing life insurance policy.

Compare life insurance and income protection policies

Canstar does not currently compare TPD policies, but we do compare life insurance and income protection policies that are available directly from a provider.

With these policies, similarly to with TPD insurance, it’s recommended you read the PDS, TMD and any other relevant policy materials before you sign the dotted line.

Canstar has a Life Insurance Needs Calculator you may find helpful to estimate how much coverage you may need.

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Original reporting by Jacqui Belesky.

Cover image source: LightField Studios/Shutterstock.com.