Which One is More Suitable/ Affordable?
You have the option to reduce the cost of your TPD insurance by linking it to your existing term life policy. It is important to note that for some insurers, the sum insured may be payable only once to cover either a permanent disability or death. This means, if a TPD benefit is paid, the policy may be canceled and no benefits are paid when the insured dies.
For example, you take out a term life benefit of $500,000 and this policy is linked to a TPD policy which also is $500,000. If you claim on your TPD cover then your life cover policy benefit will reduce to $0. This means in the event of your death, no death benefit is payable. However, if you insure a death benefit amount that is a larger sum than the TPD – $700,000 instead of $500,000, you will be left with $200,000 in benefit once you claim on your TPD cover.
Buy Back Feature
On the other hand, some insurers also offer a feature (for an additional premium) called ‘Buy Back’. Under this feature, when you claim for a benefit payment as a result of a total and permanent disability, you have the option to re-purchase the amount that has been deducted from your term life policy and continue your life cover. This feature is generally not available for TPD policies that are stand-alone or linked under a trauma cover.
TPD insurance provides a lump sum payout to you in the event you suffer a permanent disability. Most insurance companies whether through super or outside of super have a separate definition for your own occupation and any other occupation.
If you suffer a permanent disability which prevents you from returning to your own occupation it may be possible you can still work in a different occupation.
In this case any insurance cover you have within super is unlikely to be paid out as you must be unable to work in any occupation to be eligible to access any insurance benefits within super. For this reason, most superannuation funds do not offer TPD insurance for your ‘own’ occupation. Instead, they will mostly provide TPD cover with ‘any’ occupation definition which means if you satisfy the insurer’s definition you should also satisfy the trustees requirements to release funds to you.
Not all TPD insurance policies are the same. The definition of total and permamnent disability will differ in most cases. It is important to check and compare to make sure of your cover.
Choosing the right level of cover for TPD should take into consideration your current age, what debts you may want to be paid or serviced, and what income support you might need in the event you are unable to work again.
There is no age test to qualify for permanent incapacity and once you have satisfied the requirements, you have unconditional access to your super. This means you can withdraw part or all as a lump sum and/or start an income stream or pension.