What is total and permanent disability (TPD) insurance?

What is Total and Permanent Disability (TPD) insurance?

TPD insurance covers you if you become totally and permanently disabled and are unable to work due to those illnesses or disabilities. It is designed to help cover medical expenses and ongoing debts and bills that you'd struggle to pay if you were no longer able to work.

There are two different types of total and permanent disability insurance available:

• Your own occupation. You can claim it if you're unable to work again in the job you did before your disability. This cover is typically more expensive.
• Any occupation. This cover can be claimed if you can no longer work in any jobs suited to your education, training or experience. This cover is usually cheaper and less likely to pay out because say, for example, that you were previously a surgeon before disablement, you may still be able to work as a GP or doctor.

How does TPD insurance work?

What's included in a TPD policy?

The specifics of a policy will vary by insurer, but here's a list of what you'll typically find.

• Total disablement benefit. This is the benefit that's paid if you're disabled due to an injury or illness and are unable to perform work duties.
• Partial disability benefit. This is the amount that is payable in the event of partial disablement, for example, loss of 1 arm, 1 leg or sight in 1 eye.
• Buyback option. If your TPD cover is part of your life insurance, when a TPD claim is paid, the amount will be deducted from your life cover amount – a buyback option lets you reinstate that amount.
• Death benefit. A benefit amount may be payable in the event of your death, even if your TPD cover is a standalone policy.
• Loss of independence feature. 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.
• Guaranteed future insurability. This feature allows you to increase the coverage of your policy during important life events, such as marriage, children or mortgage, without needing to undergo another medical examination, even if your health situation has changed.
• Indexation benefit. Sum insured will increase annually in line with the Consumer Price Index (CPI) to keep up with inflation.
• Premium freeze option. This option allows you to choose to retain your current annual premium under a stepped style when you reach a certain age and it will reduce the insured amount gradually.

How to buy TPD insurance

TPD insurance can be purchased as standalone cover, or added to a life insurance policy. If you buy it as part of a life insurance policy, then your life cover will be reduced by any amount paid out for a TPD claim.

TPD cover can be purchased directly from life insurance providers or via a broker or financial adviser. Or, you may have access to cheaper TPD cover through your super.

How premiums work for TPD insurance

There are typically two ways that you can pay your premiums. Not all insurers will offer both options but some do.

• Stepped premiums: How much you pay for your policy increases each year by a certain percentage.
• Level premiums: Your insurance generally won't increase in price as you get older, though it will increase in line with inflation. You'll usually pay more in the beginning but they offer more certainty over time.

What to consider when purchasing a TPD policy

FAQs

• How much is the total and permanent disability payout?

  Most insurers have a maximum payout of between $1m - $5m. Your exact payout would depend on what amount you've selected based on your needs.

• What qualifies as total and permanent disability?

  Any injury that makes it impossible to do our job. Typically, this includes things like loss of sight, loss of limbs, paralysis and more.

• Is it hard to get a TPD payout?

  This will depend on the nature of your claim and the insurer you've chosen. Data from the Australian Prudential Regulation Authority (APRA) shows that it can take up to 7 months for a TPD claim to be paid out. Additionally, if you bought your policy through a broker, there's an average claim acceptance rate of 83.5%. If you bought your policy via your super, theres an average claim acceptance rate of 92.3%.

• Do TPD payouts affect Centrelink?

  Generally TPD payouts won't impact your Centrelink payments, particularly if that insurance is held within super and you are under pension age. However, a TPD payout is a form of income and you should always report any changes in circumstances to Centrelink and seek advice from it directly.

• If I suffer a partial disability, can I make a claim for TPD?

  You may be able to, depending on the specifics of your policy. Some insurers will pay out for income that's lost if you can only work at a reduced capacity because of sickness or injury.

  Also, some policies provide partial payment if you suffer certain disabilities. For example, after the loss of limbs or loss of sight.

• Do TPD policies have a waiting period?

  Depending on the policy you choose, you may be required to be unable to work because of an illness or injury for at least 3 to 6 months, before you start receiving any benefit payouts.