Q. Why you may want to consider a Total and Permanent Disability (TPD) plan

Everyone thinks it can’t happen to them. These terrible accidents or debilitating diseases happen to other people. Unfortunately they can and do occur and if so, being able to rely on insurance payment can be a huge relief. It won’t bring a person back to where they were, but it will go a long way to helping them reinstate their life as best they can. And it will certainly help their family cope and move forward.

When deciding if you need TPD cover, you must determine whether your level of private health insurance would cover your medical and financial need in case of permanent disability. Furthermore, it`s good to consider and assess other types of life insurance you have, especially through your super fund or private insurance. It is essential, when deciding whether to have a TPD cover or not, to ask yourself  how much income you and your family would  require to live if you can’t work for a while or forever.

TPD insurance cover can help you meet the daily living expenses and other costs that follow when you have been rendered permanently disabled and unable to return to work again.

Expenses that can be covered with Total and Permanent Disability Benefit Payment

  • Hospital and medical bills
  • Rehabilitation costs
  • Specialist treatment or medications
  • Modifications to your home and vehicle
  • Costs of a permanent housekeeper or nurse
  • Mortgage or rent payments
  • Bills and utilities
  • Education expenses
  • Debts

TPD insurance provides a regular source of income to ensure your family can maintain their current way of life in the event that you are unable to return to full-time work.

Q. How much Total and Permanent Disability cover do you need?

The choice of cover depends entirely on an individual’s circumstances. Term life insurance is probably the most economical form of protection for your family in the event of your death. TPD insurance covers serious and permanent disablement but does not cover temporary disabilities or many traumas – these are best covered by income protection and trauma policies. The number of cases of total and permanent disablement in comparison to other conditions is small, so if you have a limited amount of dollars to spend on insurance you will need to weigh up whether to spend it on this form of cover.

While the general rule of thumb throughout the finance industry is to take out between ten to thirteen times your annual salary, it is important to consider a needs-based approach when determining the right amount of TPD cover that will be enough to support your family financially. The amount of cover required can vary drastically between people, as they will have different needs and circumstances, so it is important to take your time to ensure you are not under or over insured.

Using a needs-based approach can help you determine the appropriate level of cover as it is tailored to your family’s specific needs and situation. The steps to calculate how much TPD cover you may need are as the following:

  • List all the financial commitments your family have currently, from ongoing living expenses, children’s education expenses, bills and debts.
  • Consider any future obligations that your family may have, i.e. your children’s higher education costs.
  • Allocate an emergency fund to cover any unexpected costs, such as medical expenses, rehabilitation costs, nursing care and home and/or vehicle modification costs.
  • Calculate the total costs of all of your commitments.
  • Take into account your partner’s age, his/her capacity to earn an income, the number of children that you have and their respective age, to determine how long you may want to cover your family’s needs for.

Q. What should you look for when getting Total and Permanent Disability insurance?

Different policies will offer a range of built-in benefits and additional options. The key features of total and permanent disability insurance will vary between insurers, so it is essential that you read the PDS of the insurer’s policy and conditions closely. Some of the features and benefits of TPD insurance generally include:

  • Death benefit

A benefit amount may be payable in the event of your death, given that your TPD cover is a stand-alone policy.

  • Partial disability benefit

A portion of the sum insured on your TPD insurance may be payable in the event of a permanent loss of the use of: one arm, one leg, or sight in one eye.

  • Your choice of ‘own occupation’ or ‘any occupation’ definition

Make sure that you compare the definitions of total and permanent disability used in your insurance policy, as not all insurance companies will define them the same way. From there, you can choose the definition of own occupation or any occupation that can suit your personal circumstances best.

  • Guaranteed future insurability

This feature allows you to increase the coverage of your policy during the 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.

  • 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.

  • Premium freeze option

Some insurers offer this option in which you can 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.

  • Buy back option

This option is only available when your TPD cover linked to your existing term life insurance. When a TPD claim is paid, the amount will be deducted from your life cover amount – buy back option will allow you to reinstate that amount.

TPD insurance is similar to income protection insurance in which you will be financially taken care of if you are unable to work due to an illness or injury. However, there are a number of differences between the two types of insurance, which are:

TPD InsuranceIncome Protection Insurance
TPD insurance is designed to provide protective cover in the event of a long term disabilityIncome protection insurance provides coverage for  both short and long term disabilities
TPD insurance benefit comes in a form of lump sum paymentIncome protection insurance provides an ongoing monthly benefit to serve as a replacement  income for a specified benefit period

Total and permanent disability insurance can be considered as additional coverage you can include in your existing insurance portfolio, either as a stand-alone policy or as a rider if you are looking for comprehensive protection for you and your family.

Q. Where can I get Total and Permanent Disability insurance?

You can purchase TPD cover from an insurance company directly or through your super fund, a broker, a financial planner or a bank