TPD vs Income Protection: Which One Should You Choose
Not being able to return to work because of an accident or illness could have devastating consequences. While sick leave and workers compensation might provide some relief, Total and Permanent Disability cover and income protection insurance will generally alleviate most of your financial burden.
Both TPD and income protection can offer financial support if you suffer an illness or injury and are unable to work. However, the main difference is in the way your benefit gets paid and the circumstances of your disability.
TPD insurance, generally, provides a lump sum benefit when totally and permanently disabled, and it’s unlikely you’ll ever work again in either your own or any occupation.
Income protection pays a monthly benefit, up to 75% of your regular income, when you're unable to work for longer than your waiting period.
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What's the difference between TPD and income protection insurance?
Total and permanent disablement (TPD), generally, pays a lump sum of money if you can no longer work in your usual occupation or any occupation for which you are reasonably suited based on experience, training or education. Income protection insurance pays a monthly benefit, for a predetermined period (benefit period), when you are unable to work for a specified period (waiting period).
Having both TPD or income protection might provide more comprehensive coverage to help you and your family continue the lifestyle you’ve grown accustomed to.
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| TPD Insurance | Income Protection Insurance |
|---|---|
| Pays a lump sum benefit if you are totally and permanently disabled due to a sickness or injury and unable to ever work again in your Own or Any occupation. | Income protection provides a monthly benefit - up to 75% for the remainder of your benefit period: Generally, 2 or 5 years or up to your age 65 or 70. |
| Generally cheaper than income protection. | Typically, more expensive than TPD because it covers more incidents. |
| Waiting period: Usually, 3 to 6 months. | Waiting period: Can range from 14, 30, or 60 days, 3 or 6 months, 1 or 2 years. |
| Premiums are not tax deductible. Lump sum benefit is generally tax-free. | Premiums are tax deductible. The monthly benefit is usually taxed because it's seen as part of your regular income. |
The advantages
| The advantages
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TPD cover options
| Income protection types
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Take note: The above table refers to Total and Permanent Disablement Insurance and Income Protection is held outside of your superannuation fund.
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How to choose between income protection and TPD
If your current budget only allows for one personal insurance policy type, determine the following to help you decide:
- If you have financial dependents relying on your income, for example, spouse, children or elderly parents.
- How much cover can you afford, i.e. the premium you pay.
- Your risk of being unable to work due to illness or injury, including your lifestyle, occupation, health and family medical history.
- Whether a lump sum or monthly benefit would better suit your unique requirements.
- How much money you have saved to help you while you wait for a benefit to be paid.
- How much sick leave and annual leave you have available, if any.
Can you claim TPD and income protection at the same time?
Yes, you can generally claim and get paid for both TPD and income protection insurance when an illness or injury prevents you from working, and you've met the policy definitions of a claimable event, as stated in your product disclosure statement (PDS). However, this might differ from insurer to insurer depending on their underwriting guidelines.
Be aware of the possible offset clause select insurance might apply when claiming on both TPD and income protection insurance.
Take note; policy definitions are different for each insurance company, so shop around and use an insurance broker to help you gather and compare quotes from Australia’s leading life insurance companies.
Combining income protection and TPD cover
It can take a long time for a medical expert to declare that you are unlikely ever to work again. TPD cover can thus take months or even years before it pays out because of the lengthy claims assessment process. This is where income protection can help fill the gap, by providing a monthly benefit to support you until you receive the TPD lump sum payment.
By combining TPD and income protection insurance, you are generally better protected and can potentially save on premiums when policies are bought from the same insurance company. However, it's vital that you consider the right option for your specific requirements and budget.
Frequently asked questions and answers
Can you have TPD and Income protection inside super?
You can set up both TPD and income protection inside your super fund. However, TPD insurance is only available for Any occupation when purchased through your super. Specific income protection benefits are not available in your superannuation, for example, the rehabilitation benefit, premium waiver benefit and the accommodation benefit.
Important: When claiming TPD or income protection through your superannuation, you’ll have to meet:
- The insurer’s policy definition of a claimable event.
- The Superannuation Industry Supervision (SIS) legislation for a condition of release.
Which option is best when self-employed and unable to return to work?
If you work for yourself or own a small business, you typically won’t have paid sick leave or workers compensation to fall back on should you become ill or injured.
However, you will generally be able to get income protection insurance and TPD cover. Which one is best suited to you depends on your personal requirements, for example, your occupation, how high a risk it is, and whether you would benefit more from a lump sum amount or a monthly benefit.
Can you claim tax on TPD and income protection?
If held outside your super fund, you can generally claim back part of your premiums for income protection, but not for TPD. On the other hand, the lump sum benefit of TPD is usually tax-free, while your monthly income protection benefit is typically taxed because it's seen as part of your regular income.
Do you need TPD and income protection
Whether you need both total and permanent disability insurance and income protection cover depends on your specific requirements, for example, your occupation, financial dependents, available savings and budget.
You might want to speak with an insurance specialist to help you.
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