Total and permanent disability (TPD) insurance is a type of life insurance that is different to life cover, income protection, or trauma cover. It is designed to pay out a lump sum if, through an illness or injury, you are judged to be permanently unable to work again. This lump sum payment can be very important in alleviating financial stress and enabling the recipient and other family members to meet important costs after a life changing event.
These costs might include:
Conversely income protection, gives you a regular payout which is designed to replace the regular wage you were earning. But life changing illnesses or injuries also often come with heavy, immediate costs that have to be met, which is where TPD comes in.
Similarly, trauma cover, also known as critical injury cover, will provide a lump sum payout like TPD. But it is different from TPD, as it only covers certain pre-agreed illnesses or injuries like cancer or heart attacks.
Life cover is different again, as it generally pays out only if the recipient passes away or develops a terminal illness.
It’s important to note that the cost of premiums for TPD are very much linked to what’s known as your individual risk profile. So, premiums can vary greatly depending on the level of risk associated with your occupation and other health considerations. Additionally, the same person can be assessed quite differently by different insurers.
Even under the TPD umbrella there are different structures for policies, known as, own, or any occupation cover. In essence, an own occupation policy pays out if you can’t work solely in the occupation you were employed in at the time of claiming. Conversely any occupation cover only pays out if you can’t work permanently in any occupation aligned with your past experience, education or training. So for example, with an any occupation policy, if you were a brain surgeon at the time of claiming, but while putting yourself through your medical degree, you had worked as a technical writer for a pharmaceutical company, and it was deemed you could still fulfill this previous capacity—you may not get a payout. The lesson to be learned? Be very clear on what type of policy you are signing up for and the details around that particular policy.
The question of whether to take out TPD cover within your super fund is one that often comes up with our clients here at SMSF Insurance Partners. It’s an attractive option in some senses because the premiums can be paid from your super balance. However, only any occupation TPD cover is available when purchasing through a super fund. Added to this, some funds will carry out an ADL (activities of daily living) test at the time of your claiming, to assess the severity of your disability.
On that front you also need to be aware that insurance companies can test your claim for TPD. As with any insurance policy, it’s very important to understand the conditions of the policy, especially as regards what you will, or won’t be covered for, and any exclusions present.
There is no doubting that TPD can be a detailed and specialised area of insurance. If you would like our team at SMFS Insurance Partners to shed more light on what might be an appropriate policy structure for you, please contact us by phone on (07) 3064 0413 or use the contact us section of our website to leave us a message and we will respond to you promptly.
