What is Total and Permanent Disability Insurance and How Does It Work
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.
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
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.
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.
Compare TPD Insurance Policies
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.
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 pays a partial benefit if you are unable to perform at least 2 of the 5 activities of daily living:
- Dressing and undressing
- Eating and drinking
- Bathing and/or showering
- Using a toilet for hygiene purposes
- Being able to move from your bed or wheelchair or moving with the help of a walking aid or wheelchair
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.
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|
|Heavy Blue Collar|
|$750,000 worth of cover||White Collar|
|Heavy Blue Collar|
|$1,000,000 worth of cover||White Collar|
|Heavy Blue Collar|
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.
Compare TPD Quotes and Save
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:
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.
Frequently asked questions
The main difference between critical illness and disability insurance is your ability to continue working. Find out which is best suited to your circumstances.
Total Permanent Disability (TPD) insurance is additional cover which provides a lump sum in the event that the insured suffers total & permanent disability.
TPD Insurance can be funded through superannuation, learn the limitations of this from our working examples of having your TPD in super.