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TPD vs Trauma Insurance

Megan Fraser Fact Checked Updated: 20 October 2022

Trauma Insurance and Total Permanent Disability (TPD) Insurance may seem somewhat similar, but their purposes support you through two fairly different circumstances. Understanding the key differences between these policies could help you make an informed decision about which is right for you. If you were to suddenly lose your ability to work due to illness or injury, it’s essential that you’ll still be able to maintain all of your financial responsibilities.

Both trauma and TPD insurance help you financially with a lump sum benefit. However, the payout is subject to different terms and conditions. Generally, a TPD benefit is paid out if you cannot return to work in your own or any occupation. In contrast, critical illness insurance generally pays if you become critically ill.

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Should I Get Both TPD And Trauma Insurance?

This typically depends on your personal requirements. While TPD and trauma insurance can offer peace of mind, you don’t necessarily need both. Alternatively, investing in both types of cover could provide you with additional peace of mind as you’ll be protected for several different scenarios.

The difference between trauma and TPD insurance

Typically, trauma insurance cover pays out a lump sum benefit that you can use to cover your financial responsibilities. For example, you could use the money to pay off your medical bills, reduce your mortgage, and support yourself and your loved ones while you heal. On the other hand, you might use a TPD lump sum benefit to assist you and your family financially while you cannot work. However, your benefits can go towards paying for home modifications to support your new lifestyle, outstanding debts, living expenses, and medical bills that may have accumulated.

Trauma insurance definition

This type of cover is generally also known as critical illness insurance. It’s a form of life insurance that pays out a benefit if you’re diagnosed with an illness listed in your Product Disclosure Statement (PDS), such as cancer or a heart attack. You have the option of buying a standalone trauma insurance policy or adding it to your life insurance.

You can generally use the benefits of a trauma insurance policy as you please. It might help pay for your treatment and mortgage payments, cover medical bills, or simply keep you afloat while you recuperate.

Advantages of critical illness insurance

Disadvantages of trauma insurance

TPD insurance definition

Total and permanent disablement insurance pays a once-off benefit if a medical practitioner has deemed you unable to ever work again because of an illness or injury. This could be either in your Own or Any occupation, depending on your chosen TPD definition. This benefit is typically used to support yourself and your family for the long term.

Advantages of disability insurance

Disadvantages of TPD insurance

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Disability insurance vs critical illness cover

Trauma insuranceTPD insurance
Pays a lump sum benefit regardless of whether you’ll be able to return to work.A lump sum benefit is paid out if you are permanently unable to return to work in your Own or Any occupation, depending on your policy definitions.
Could provide you with cover for up to 60 critical illnesses, depending on who you’re insured with.Typically only covers total and permanent disability.
Can be combined with life insurance.TPD cover can generally be combined with other types of cover.
You’ll typically need to complete a 90 day waiting period.Your insurer’s Total and Permanent disablement definitions need to be met for at least 3 to 6 months, depending on who you’re insured with, before you’ll receive any benefits.
Premiums for trauma insurance are generally not tax deductible . However, benefits are typically paid as a tax-free lump sum.Premiums are usually not tax deductible when the policy is held in your personal name, however premiums can be tax deductible to your super fund if the policy is owned by your super fund.

Which one should you choose?

The type of cover you should purchase generally depends on your specific requirements, your budget as well as your financial responsibilities. TPD and critical illness cover both pay a lump sum benefit if you become sick or injured. However, getting a claim approved for TPD insurance is more difficult because you must be able to prove that you are totally and permanently disabled as per the  policy definition of disablement. Critical illness insurance is claimed on more frequently due to the prevalence of the conditions defined , but the cover amount is only paid when you meet the definition, and it generally costs more than TPD.

Frequently asked questions and answers

  • What is the difference between trauma and TPD?

    The main difference between trauma insurance and total and permanent disability insurance is that trauma insurance will pay you for the specified illnesses while you are trying to get back to work, while TPD insurance doesn’t pay you unless you can never go back to work.
  • Should you have trauma and TPD Insurance?

    Although they may appear to be alike, disability insurance and critical illness cover each have their own individual pros and cons. You can’t replace one with the other, but you could supplement your life insurance policy by having both TPD and trauma cover. Doing so would give you a more comprehensive coverage plan.
  • What is the difference between trauma insurance and income protection?

    The distinction is that insurance coverage for trauma is paid upon diagnosis. There is no requirement that the person be unable to work. This type of insurance provides financial coverage in the event that you are unable to work due to an injury or illness. Income protection can only be paid out when you are unable to work for longer than the waiting period.
  • Is life insurance the same as TPD?

    Generally, death cover pays out a lump sum benefit your beneficiaries receive when you pass away. If you suffer an illness or injury defined in your PDS that leaves you totally and permanently disabled, TPD will typically provide you with a lump sum insurance benefit.

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