What is Total and Permanent Disability Insurance and How Does It Work

Published: April 18, 2018

Receive a tax-free lump sum benefit when you are unable to work ever again because an illness or accident has rendered you totally and permanently disabled. This benefit supports you in paying your bills, taking care of your dependents and modifying your home or car so your quality of life is the best it can be.

Key summary:

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What is TPD insurance?

Total and Permanent Disablement (TPD) Insurance provides a lump sum benefit if you become totally and permanently disabled. Disability cover is usually purchased as an optional extra on your life insurance policy, but select insurers do offer it as a standalone policy. 

What is considered a permanent disability?

Total and permanent disablement typically means you have suffered the total and irrecoverable loss of:

  • Sight in both eyes;
  • Use of two limbs; or
  • Sight in one eye and use or one limb.

To be defined as being totally and permanently disabled you must meet the following criteria:

  • Been totally and permanently disabled for a continuous period of 3 to 6 months, depending on the insurer.
  • Assessed by at least one medical practitioner as being totally and permanently disabled. In some cases, insurers will require assessments from two medical practitioners.
  • Undergone all reasonable forms of treatment and rehabilitation.
  • Meet your policy/PDS total and permanent disablement definition

In select cases, insurers may ask for other evidence of total and permanent disablement apart from the available medical evidence.

Do you need TPD insurance?

Ideally, you want to take out TPD Insurance when you start earning a salary because the lump sum it provides can replace your future earnings and help pay for your:

  • Mortgage, rent or other ongoing obligations you might have.
  • Medical expenses.
  • Home modifications or equipment you now need because of your total and permanent disability, for example, ramps, wheelchairs, and special furniture.
  • Other outstanding debts you may have.

How does disability insurance work?

Disability insurance in Australia pays you a lump sum when you are totally and permanently unable to work due an accident or sickness. On paying out this benefit, your life cover is reduced by the same amount if purchased in combination with life insurance. Disability can also be obtained as stand-alone cover, depending on the insurer.

There are 4 types of total and permanent disablement definitions, including Own Occupation, Any Occupation, Home Duties and Modified TPD. Different life insurance companies will have different disability definitions.

You can buy a TPD policy directly from the insurer, or through your super fund or from a broker or comparative website like ComparingExpert.

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What is covered by TPD insurance?

TPD insurance offers different levels of coverage. Depending on your occupation and your insurer, you might have the option of either:

  • Own occupation.
  • Any occupation.
  • Home duties.
  • Modified.

Total and Permanent Disability: Own Occupation

Own Occupation TPD protects you if you are permanently unable to perform the functions associated with your own occupation. This disability t is usually more expensive because it is the most comprehensive level of cover and it's generally easier to satisfy the insurer of a valid claim.

Own occupation TPD case study

Liam runs a plumbing business, employing multiple plumbers, but he also continues to work as a plumber himself. Last year Liam lost the use of his arm in a car accident. Although he can still run his business, he is forever unable to work as a plumber, so Liam will still receive a benefit.

Any Occupation TPD cover

Any Occupation provides a benefit if you are unlikely ever to be able to work in Any Occupation for which you are reasonably suited to by way of training, education or experience.

Let's say Liam, the plumber and business owner, had Any Occupation TPD when he lost the use of his arm. In this case, he would not receive a lump sum benefit because he can continue to run his business.

Home Duties TPD

If you are a homemaker or stay-at-home parent and responsible for looking after the house and kids full time, Home Duties TPD can provide financial protection if you become totally and permanently disabled and unable to ever again return to your regular domestic duties.

Normal domestic duties include:

  • Cleaning the house
  • Shopping for food and groceries
  • Preparing meals for your family
  • Doing the laundry
  • Caring for dependent children or elderly parents

Modified TPD

Modified TPD pays a partial benefit if you are unable to perform at least 2 of the 5 activities of daily living:

  1. Dressing and undressing
  2. Eating and drinking
  3. Bathing and/or showering
  4. Using a toilet for hygiene purposes
  5. Being able to move from your bed or wheelchair or moving with the help of a walking aid or wheelchair

What's not covered?

Depending on your insurer and the type of TPD cover you purchase, specific exclusion might apply to your policy. However, in most cases, no payment will be made if the claim was caused by an intentional, self-inflicted injury, either directly or indirectly, within the first 13 months of your policy commencing.

How much TPD insurance do I need?

When calculating how much TPD cover you need, make sure you have enough to meet your existing and future needs so that you can maintain your lifestyle.

Because becoming totally and permanently disabled may mean you can never work, drive, cook, clean, or take care of your children ever again, it can significantly impact you and your family.

When deciding on the level of cover you need, you should consider:

  • Any mortgage, rent or other ongoing obligations you have.
  • Any other outstanding debts that need to be paid.
  • Your day to day living expenses.
  • School fees and educational expenses.
  • The cost of hiring a cleaner, maid or nanny to help with the housework.
  • Medical expenses that may arise from your sickness or injuries.
  • Home modifications or equipment that may be required.

How to calculate TPD insurance

Apart from your age and gender; your premiums will also vary depending on the amount of cover your purchase and your occupational rating. If your work requires manual labour, the cost of your protection will be higher, due to the increased risk of injuries.

Your occupation classifications are usually determined by the day-to-day duties you perform. There are generally 5 classes of occupation.

Professional collar

Typically applies to degree-qualified business executives earning a guaranteed minimum income and includes the requirements listed for the white collar classification. For example:

  • Accountant
  • Actuary
  • Qualified acupuncturist
  • Cardiologist
  • Paediatrician

White collar

Professionals with a university qualification performing light-skilled duties typically mental type work rather than physical. For example:

  • Bookshop worker
  • Bookkeeper
  • Homemaker
  • Lawyer
  • Florist

Blue collar

Jobs that require less than 20% light manual work. For example:

  • Bicycle store worker
  • Hardware retailer
  • Winemaker
  • Hairdresser
  • Picture framer

Heavy blue collar

Mainly occupations that need a lot of manual labour, but that is not hazardous. For example:

  • Aerobics instructor
  • Boatbuilder
  • Nurse
  • Interior decorator
  • Elevator mechanic

Special risk

Usually refers to dangerous jobs or an occupation that presents with particular difficulties. For example:

  • Agricultural contractor
  • Bottle dealer
  • Crane operator
  • Tree surgeon
  • Security guard

Not insurable

Occupations too hazardous or high risk for an insurer to provide coverage. For example:

  • Actor or actress
  • Driver/courier – motorcycle or bicycle
  • Model
  • Stuntman
  • Fisherman

Please note, above occupational classes differ from insurer to insurer. Carefully review the product disclosure statement (PDS) to determine which occupational rate you might receive.

How much does TPD insurance cost?

Cover Amount – Any Occupation Gender Average Monthly Premium
$500,000 worth of cover White Collar
Male $20.94
Female $20.53
Blue Collar
Male $30.04
Female $29.94
Heavy Blue Collar
Male $26.77
Female $37.71
$750,000 worth of cover White Collar
Male $30.82
Female $29.85
Blue Collar
Male $44.19
Female $43.83
Heavy Blue Collar
Male $52.18
Female $50.21
$1,000,000 worth of cover White Collar
Male $39.30
Female $38.83
Blue Collar
Male $56.68
Female $65.25
Heavy Blue Collar
Male $63.24
Female $61.14

The above average cost of TPD cover was calculated using lifeinsurancedirect.com.au’s free online comparison tool. Calculations were based on retail insurance policies (stepped premiums) for a non-smoking 35-year-person living in Victoria, as at April 2018.

Features to consider when comparing disability insurance quotes

  • Premium structure: Do you have an option between stepped, level or hybrid premiums?
  • Available as a standalone or rider benefit: This depends on which option you want to purchase. Take note; a standalone TPD policy generally requires you to survive for at least 14 days to be eligible for a claim.
  • Partial and permanent disablement: Check if you would get an advance payment from your sum insured, typically 25%, if you suffer permanent loss of use of only one arm, one leg or sight in one eye.
  • Financial advice benefit: Select insurers will offer to reimburse you for the cost of obtaining advice from a financial planner, up to a specific amount.
  • Premium freeze option: Can you freeze your premiums to stay at its current cost? This is only available for stepped premiums and remember your cover amount will decrease every year, so your premiums can stay at the price it was when you froze it.
  • Benefit indexation: Does you cover increase each year in line with the cost of living? You can always opt out of indexation if premiums are becoming too expensive.

Different insurers will offer different policy options for Total and Permanent Disablement. Shop around and compare before deciding.

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Combined TPD

Combined or bundled cover refers to connecting policies together to give you more comprehensive coverage at more affordable rates. TPD is generally available to be combined with Life Insurance and/or Trauma Cover however it is also possible to take out as a stand-alone policy.

Additional features you can generally add to a combined Life, and TPD policy for an extra fee includes:

  • Double TPD

    This option immediately reinstates your full life cover benefit after you have claimed on your TPD cover.

  • Life cover buy back

    When a total and permanent disablement claim has been made, this option allows you to buy back the portion of life insurance that was reduced due to a claim being made.

  • Future life events

    Select insurers will provide you the option to increase your TPD cover without evidence of health or past times when specific life events have taken place, for example, getting married or divorced, starting a family or increasing your mortgage.

How to make a TPD claim

Your eligibility to make a TPD claim depends on the requirements as laid out in your policy documents. Generally, specific criteria need to be met, including:

  • Level of disability: Some insurers will require you to prove that you are suffering a minimum level of disability with a specialist to confirm your inability to return to your previous occupation or to work at all.
  • Waiting period: Typically, you will need to have been absent from work for a continuous period of at least 3 to 6 months, depending on your insurer.
  • Employment history: Your insurer might ask that you meet a minimum level of employment (usually in the form of weekly working hours and length of employment) before you are eligible to receive a payout.
  • Inside or outside super: Superannuation TPD policies only provide cover for Any occupation disabilities.

The above criteria are dependent on your insurer and the type of policy you purchase. 

Frequently asked questions

Is a TPD payout taxed?

No, generally, the lump sum benefits you’ll receive after submitting a valid TPD claim will be tax-free. However, TPD premiums are not tax deductible because it is not viewed as a replacement income, like income protection insurance, but rather serves as financial compensation for never again being able to work due to permanent and total disablement.

If you're purchasing TPD insurance for business purposes, the tax situation may differ. It's best to get advice from a tax specialist in such a case.

Can you work after a TPD payout?

Yes, if you’ve previously received a TPD lump sum payment, but due to medical advances you’re again able to join the workforce you can return to being employed without having to repay the money to your insurer unless evidence of fraud comes to light. However, TPD policies differ from one insurer to the next, so you might want to obtain legal advice in such a situation.

Can you claim TPD and income protection?

Yes, when meeting both claimable definitions as per your PDS. If you were to suffer a severe illness or accident and are unable to work, it might take up to 6 months before you TPD cover gets released. If you also have an income protection policy, it may help fill that gap, depending on the waiting period you choose.

When combining your income protection with total and permanent disablement, you can potentially save on premium.

Ask an Expert?

2 Comments

  • Paul Millar |

    I paid out my Superannuation and the TPD associated with that and I received a very small Centrelink benefit due to my wife working. Also, I still have to pay for medications etc.

    Any advice would be helpful. I also did a tax return to see whether I’m eligible for a return and the reply was no.

    • SPECIALIST
      Anneke Van Aswegen |

      Hi Paul,
      I’m not sure exactly what your question is, please feel free to give us a call on 1300 743 254. Regarding tax on a lump sum withdrawal from your super upon a successful TPD claim, please request assistance from your accountant or a tax specialist as we are not professional tax advisers.