TPD Insurance Explained

Total and permanent disability insurance is a type of cover designed to provide financial protection in the event that you are unable to work ever again due to injury or illness.

When you suffer an injury or illness that leaves you unable to work ever again, your ability to earn an income is similar to what it would have been if the injury or illness had resulted in your death. The difference is that you still have to support yourself financially, and there will be no life insurance to support your family.

This is where TPD insurance steps in. The payout from a TPD insurance policy will generally be used in a similar way to a life insurance payout, however the funds will also have to support yourself as well as your family.

When TPD insurance pays

A claim will be paid on your TPD insurance policy when, in a doctor’s opinion, you are unlikely to ever work again due to injury or illness.

Some TPD insurance claims will be fairly straight forward, examples of which include quadriplegia where it will be quite obvious from the beginning whether or not you will be able to continue working. Other cases can be more complex when it is not clear whether or not you will ever return to work.

TPD insurance definitions

Whether or not your TPD insurance claim is paid depends heavily on the definition you have selected for your policy.

All TPD policies are issues with one of two definitions, being ‘own occupation’ or ‘any occupation’. It is up to you to choose a definition when taking out your policy.

An ‘own occupation’ 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.

An ‘any occupation’ 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.

A good example of the differences in the definitions is to look at the claim of a surgeon who has lost the use of one hand. With an own occupation policy it is clear that the client could not continue practicing as a surgeon, and therefore his or her claim would be paid.

If the client had an any occupation definition however, the insurance company may state that although they cannot continue as a surgeon, they could still work as a hospital supervisor or university lecturer for example. No claim would be paid in this case.

Generally an own occupation definition will be the preferable option, however the premiums will be higher, and this option is not available for all occupations.

How much cover do you need?

Many people opt for an amount of TPD insurance that is equal to their life insurance, as the requirements for both are quite similar.

The amount of TPD insurance required by each person will depend on their own needs and objectives, but generally the cover should be sufficient to repay all mortgages and other debts, and provide sufficient funds to replace any lost income.

Some TPD insurance holders also include an additional lump sum to cover any potential medical or rehabilitation expenses.

Often a person who has suffered a serious injury or illness may be able to improve their standard of living through specialised rehabilitation programs either in Australia or overseas. These programs can be prohibitively expensive for the average person, but with an extra $200,000 or more in TPD insurance you will be able to access the best treatment in the world.

Choosing a TPD policy

It is important to choose a TPD insurance policy that suits your own circumstances as well as your occupation. Different insurance companies treat different occupations differently, and may not offer favourable definitions for your occupation. It is certainly worth shopping around to find an insurer that will provide the best definition for your specific occupation.

Cost is also a factor when choosing a TPD policy, as we all want to get the best value for money from our insurance. Although finding an affordable policy is important, you still need to ensure the policy is going to meet your needs and will be there when you need it most.