Definition of TPD
In the event of an accident, illness, or disability that prevents you from working, disability insurance, also known as Total Permanent Disability (TPD) insurance, can protect you and your family by alleviating financial stress, maintaining your quality of life, and providing a lump-sum payout. This payout can be used for debt repayment, children’s education, paying out-of-pocket medical expenses, and retirement living expenses.
How TPD differ from other insurance:
Difference from Income Protection Insurance: TPD insurance provides a one-time payout for permanent disability, whereas income protection insurance offers a continuous income replacement during temporary loss of work ability.
Difference from Critical Illness Insurance: Critical illness insurance provides a payout upon diagnosis of a major illness, regardless of work ability; TPD insurance focuses on permanent disability that results in the inability to work.
Total and Permanent Disability (TPD) Insurance Explained
-
- Coverage: TPD insurance provides a one-time payout if the insured suffers from a total and permanent disability due to illness or injury and is unable to work again. Definitions of “total disability” and “permanent disability” may vary between insurance companies, so comparing terms is crucial.
-
- Costs and Calculation: The premium for TPD insurance is calculated based on individual risk factors, including age, gender, occupation, lifestyle, and medical history. Premiums can vary significantly between different insurance companies.
Overview of Life Insurance Types
-
- Life Insurance: Pays out to beneficiaries upon death or diagnosis of a terminal illness.
-
- Critical Illness Insurance: Provides a one-time payout for specific injuries or illnesses.
-
- Total and Permanent Disability Insurance (TPD): Provides a one-time payout if the insured is unable to work due to permanent illness, injury, or disability.
-
- Income Protection Insurance: Pays up to 70% of normal income during periods of illness or injury.
Waiting Period for TPD Insurance
TPD insurance typically has a waiting period, which is the time from when the disability occurs until you can make a claim. The length of the waiting period varies depending on the policy, generally ranging from two to six months.
Why Compare TPD Insurance?
Insurance needs vary from person to person, so the best TPD insurance plan will also differ. When comparing different policies, consider the required coverage amount, coverage duration, and policy type.
Benefits of TPD Insurance
-
- Ensures financial security if you are unable to work due to total and permanent disability.
-
- Can be used to cover medical expenses, living costs, debt repayment, etc.
Types of TPD Insurance
-
- Income Protection vs. TPD Insurance: Income protection and TPD cover different aspects. If people feel the need, they often purchase both types of insurance. Income protection aims to maintain a portion of normal income during temporary injury or illness. In contrast, TPD insurance provides a financial boost through a lump-sum payment, which can be used for home modifications, mortgage repayment, or ongoing living expenses.
-
- Difference Between “Any Occupation” and “Own Occupation” Definitions: When purchasing a TPD policy, you must choose between “own occupation” or “any occupation” coverage, which determines the payout conditions. Own occupation TPD pays out if you cannot work in your original occupation; whereas any occupation TPD requires you to be unable to work in any occupation suited to your experience, education, or training. The choice should be made carefully based on personal circumstances.
-
- What Do “Any Occupation” and “Own Occupation” Mean?
-
- Example: Emma is a software engineer. After a wrist injury from an accident, she is unable to perform programming and detailed keyboard tasks, which are core to her job. Before becoming a software engineer, Emma worked in marketing, handling social media promotion. If she can still perform marketing tasks that do not require frequent wrist use, her claim under an any occupation TPD policy might be denied. The key is that any occupation policies typically require the insured to be unable to work in any occupation for which they have education, experience, and training. Thus, Emma needs to prove that her wrist injury prevents her from working in any profession related to her background, not just as a software engineer.
Superannuation and TPD
Yes, many superannuation funds automatically include TPD coverage. However, note that TPD through superannuation will always be on an any occupation basis; own occupation TPD cannot be purchased through superannuation. Additionally, some superannuation funds may require you to undergo Activities of Daily Living (ADL) tests to assess the severity of your disability. This means that they will only pay out if you cannot perform basic daily tasks such as eating, moving independently, walking, and completing personal hygiene. For some, the TPD coverage through their superannuation may be sufficient.
Can You Work After a TPD Claim?
Yes. If your insurance company agrees that you have met the terms of the TPD policy and you have received the payout, you can return to work if you have received sufficient compensation.
Claim Time and Process
The processing time for claims varies by insurance company, typically taking two to three months, but it depends on how efficient and effective the life insured and doctor(s) are able to provide all relevant documents for claim especially the treating specialist report.
Can You Claim TPD for Partial Disability?
TPD payouts depend on work ability. An own occupation policy pays out if you cannot work in your original occupation, while an any occupation policy requires you to be unable to work in any occupation matching your training and education background.
Can You Claim TPD for Mental Illness?
Most TPD covers Mental Illness but it also depends on the terms of your TPD policy. It is important to read and understand the Product Disclosure Statement to know what is covered and what is not.
Can TPD Insurance Be Tax Deductible?
TPD insurance held through a superannuation fund can be tax-deductible. However, if you hold a TPD policy outside of a superannuation fund, the premiums are generally not tax-deductible.
Want to know more?
If you’d like to discuss any of the content in this article and how it may apply to you, please call me on 1800 668 153.
You can also book a discovery call thru our live calendar.
We love hearing from our readers! Please send us your questions, feedback or interest topic by clicking here.
Author Profile: Jeffrey Liu, JP, is the founder and principal adviser of Hippo Wealth, with a deep expertise in wealth protection. His extensive experience includes roles in the wealth management divisions of Westpac, ANZ, and a local multi-family office. As the host of “Riches Talk,” a podcast dedicated to cultivating personal and business growth, Jeffrey has established himself as a thought leader in developing life riches. His insights have been featured on SBS, The Australian, and Channel 7. Notably, he was a semi-finalist on Australia’s Got Talent in 2010. Learn more at www.hippowealth.com.au.
