What is TPD Insurance?
TPD Insurance provides a lump sum payment if you’re totally and permanently disabled. Depending on your policy, you are covered if you can’t work again (see occupation definition in tips below).
TPD Insurance can be used to help cover rehabilitation costs, repayment of debts and the cost of living for you and your dependants. Payments are not usually made until the disability has been evident for six months, and the insurer deems that you are unlikely to work again based on the definition in your particular policy. It can specifically:
- Pay for lifestyle changes
- Pay off debts
Total and Permanent Disablement Insurance (TPD Cover): often people take the same level of TPD cover as life cover. However this may not always be required, especially where income protection is established.
What options are there with TPD Insurance?
Policies are setup choosing one of two possible variations, being ‘any occupation’ or ‘own occupation’:
Any Occupation definition
You are able to make a TPD claim if you are permanently disabled and unable to perform any occupation that you are suited to by education, training or experience.
Own Occupation
You can claim if you are unable to work in your usual occupation of chosen field of employment
How Much TPD Insurance
When determining the amount of TPD insurance to establishe you will need to take into account your personal situation and family needs. Think about your financial commitments (debts, mortgage repayments, rent etc), and think about a situation where you may never work again. How much TPD insurance would be required to provide financial stability?
When deciding how much TPD insurance to establish you should also take into account other factors such as income protection insurance, and if you have income protection this may enable you to reduce the amount of TPD cover that you establish.
Case study
Situation: 45 year-old couple with two teenage kids and a $250,000 mortgage with the father earning $90,000 a year and the mother providing full-time home care. The father suffers a cycling accident and breaks his back, becoming partially disabled, and is unable to continue work in the same or similar vocation indefinitely.
Outcome: TPD Insurance pays him $500,000, allowing the family to pay off the mortgage, refit the home to allow for greater mobility, pay for a carer, and provide an initial income stream.
TPD Insurance cover has relatively low premiums when compared to other types of insurance, TPD premiums will vary according to:
- Age (premiums may increase or cover decrease as you get older)
- Gender (males attract higher TPD premiums due to higher risks)
- Smokers / Non-Smokers
- Occupation (for example, a manual labourer pays higher premiums to an office worker due to higher risk)
Tax Implications
TPD Insurance premiums are not tax deductible; however, the benefit payment is tax-free if paid to the injured person (non-superannuation).
