Part 2 - What is Total & Permanent Disability (TPD) Insurance?

When you suffer from a permanent injury or illness, you become a burden on yourself and your family as you cannot earn an income. However, you will still need money to support you and your family, as well as the most likely additional expenses relating to the injury or illness.

If this occurs, Total and Permanent Disability (TPD) Insurance will provide a lump sum that can provide a financial safety net to support you and your family. It can start by clearing your debts, paying for medical and rehabilitation costs as well as providing funds for the possible required home/car modifications.

In some circumstances, with milder conditions, you may still be able to claim, although you won't be submitting a claim for the entire insured amount. For example, the loss of a finger may not be severe enough to stop you from working. However, such an injury may qualify for a limited benefit (e.g., 25% of a full payout).

How much TPD cover should you have?

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

• Supplement living expenses for you and your family
• Provide coverage for medical and nursing costs and possible purchase of equipment (such as wheelchairs, modified vehicles, etc.)
• Home modifications such as ramps for wheelchair access or
• Support having to move to a new home.

What to consider concerning a TPD insurance policy?

• The definition of the TPD - The definition of your TPD policy determines your ability to claim. It is essential to understand what definition you have and what needs to happen for you to claim. There are three main definitions:
  • Own Occupation: An 'own occupation' TPD definition means that your claim will be paid if a doctor believes you are unlikely to ever return to your own occupation. Your own occupation is regarded as the one you were engaged in at the time of the injury or illness. Remember, an 'own occupation' definition is no longer available within a standard superannuation policy. This type of policy can only be taken out through a retail insurance company.
  • Any Occupation: An 'any occupation' TPD definition means that your claim will be paid if a doctor believes that you are unlikely to ever return to any occupation. Any occupation is regarded as one that you may be suited to by experience or education. BIG NOTE: Not all "' any occupation' TPD definitions are the same. There are companies/superannuation funds that have a clause that if you can be retrained or rehabilitated, you will not be paid the claim. Make sure you know exactly what definition you have by having a free review.
  • Home Duties: There is also a lower TPD definition category that looks after those that look after the house. If you are not currently in the workforce, you can still be covered so that if you suffer from a permanent injury or illness that prevents you from doing your household duties such as hanging out the washing or cleaning the house.
• Flexi-Linking: Some policies offer 'flexi-linking' to manage occupation definitions and costs where some of the premiums are paid from superannuation. Flexi-linking of TPD insurance can allow the life insured to obtain an 'any occupation' definition when part of the policy suite is held within superannuation. The 'own occupation' portion of the policy is held outside of superannuation, with the premium cost for this needing to be met from personal cash flow. Please note that a flexible linking policy is only available for retail insurance policies and not just what your superannuation fund has to offer.
• 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 you have claimed.

So how do can I pay for my TPD Insurance?

You can pay for your premiums from cashflow or your superannuation account if you have an 'any occupation' definition. An 'own occupation' must be paid from your cash flow as you cannot hold this type of policy through your superannuation fund. However, as I have said above, you can get the best of both worlds with a flexible linked policy.
Like with all personal insurances, you can generally choose to pay for TPD insurance with either:

• Stepped premiums: recalculated at each policy renewal, usually increasing each year based on the higher chance of a claim as you age
• Level premiums:  charge a higher premium at the start of the policy, but changes to cost aren't based on your age, so increases happen more slowly over time

Your choice of stepped or level premiums will impact how much your premiums will cost now and in the future.

When looking into different TPD policies, what else should I look for?

​When you are comparing policies or looking to purchase a new policy, you should always read the Product Disclosure Statement as this will highlight the other things you should consider, such as:

• Exclusions
• Waiting periods before you can claim
• Limits on cover

Remember, a cheaper policy may have more exclusions or become more expensive in the future.

What do I do now? I hear you ask.

• Well, you could do some calculations about what cover you need, source a company with a policy that matches your needs and budget, work out how you want to pay for the  insurance then go ahead and apply to the company directly. Or;
• You could book an appointment with me to review all your existing insurances and receive a professional recommendation to ensure you have the right level of cover.

OR

• You could click the hyperlink to get a FREE copy of my "The 12 Biggest Mistakes People Make With Their Personal Insurances. And How To Avoid Them" eBook. This book will give you a great understanding of the most common mistakes people make when getting their insurances sorted and how best to avoid them, so you don't repeat their mistakes. There is an old saying, "You should always learn from your mistakes," but isn't it better when you get to learn from other people's mistakes!
  

And don't forget to follow me on my socials for regular updates in the industry as well as tips and tricks to help you manage your finances better.