Total and Permanent disability (TPD) cover provides a lump sum payment of the sum insured should the life insured become totally incapacitated through injury or illness and satisfies the policy’s definition of TPD. Once payment is made, the policy usually ceases. TPD insurance is usually sold as an additional benefit or rider to a life  or trauma insurance policy.

Definition of TPD

There are three TPD occupation definitions available from which to select cover for a client. Each definition initially requires that the life insured be unable to perform any work, due to sickness or injury, for six consecutive months. Thereafter, the definition requires that the life insured should meet one of the following definitions:

  • Any occupation (standard definition) – unable to perform the duties of any occupation for which they are reasonably suited by reason of education, training or experience and unlikely to ever do so.
  • Own Occupation – Unable to perform the duties of their own occupation and unlikely ever to do so. This definition generally incurs a higher premium.
  • Homemaker– Unable to perform full-time unpaid domestic duties.The difference between the definitions can be quite significant depending on the client’s current occupation, and affects the amount of premium paid, as particular definitions may increase or decrease the likelihood of being able to make a claim.

    In addition to the occupational disablement definition, most TPD policies will also offer a benefit if the insured suffers loss of:

  • -Two hands
  • Two feet
  • Sight of two eyes
  • One hand or foot, one eye, or
  • One hand and one foot

Note: Payments will not be made if a TPD event occurs as a result of a war or an act of war event, or a self-inflicted act.

How it works?

You can purchase your TPD cover as a linked option to your Life or Trauma insurance. This means that you pay a reduced premium for your TPD cover but a TPD claim will reduce your life or trauma cover by the amount of your TPD claim. In the event of a TPD claim your premium will reduce to reflect your reduced life or trauma cover. To regain the reduce cover amount after a period, it is recommended a buy-back option is included.  A ‘buy-back’ option allows you to purchase back the reduced life or trauma cover amount after the claim. TPD cover normally stops at age 65 but many insurers are now extending cover beyond this age.

Ownership

TPD insurance can be held in your own name or held within your superannuation fund. Self-ownership of an insurance policy means that premiums are to be funded by you out of pocket, they may be suitable for you if you have the funds to pay your premium out of pocket each month or if you would like to ensure that your insurance benefit will be a tax-free lump sum. Holding your insurance cover through superannuation means that your superannuation account balance will be reduced through the payment of the insurance premiums.  This will have the effect of reducing your retirement savings and your ability to generate retirement income.   In the event of a TPD claim, your benefit payment will go directly to your superannuation account and will be taxable.

How to apply for TPD insurance and who can set it up?

To apply for TPD insurance, you should speak to a financial adviser to assist you in understanding the funds you may need for medical expenses, potential renovation costs, capital to generate income for ongoing living, as well as  other costs you may have to cover in the event of a TPD due to the changes that may occur in your lifestyle.

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