A permanent injury or illness can make it difficult or impossible to return work. Total and Permanent Disability (TPD) Insurance can provide a financial safety net to help support you and your family, and pay for medical and rehabilitation costs, everyday living expenses, or further pay off debt such as a home loan or personal loan.
What does TPD insurance cover?
The definition of “total and permanent disability” varies between insurers. It will typically cover you if you are unable to work either in your ‘own occupation’ or ‘any occupation’. ASIC’s ASIC’s Moneysmart defines each of these terms as follows:
- Your own occupation. You’re unable to work again in the job you were working in before your disability. This cover is more expensive and is usually only available outside super.
- Any occupation. You’re unable to ever work again in any job suited to your education, training or experience. This cover is cheaper but has a higher threshold to claim, so it’s less likely to pay out.
A qualified financial planning professional should always be consulted to provide the appropriate advice, and guide you through the Product Disclosure Statement (PDS) for various products.
Do You Need TPD Insurance?
In order to determined if you need TPD, or how much cover would be necessary, you should consider the following:
- What re the living expenses for you and your family?
- What payout would be required to repay debts such as your mortgage and credit cards?
- How much might be necessary for medical and rehabilitation costs?
- What figure would be necessary to preserve a qualify of life in retirement?
Also consider the options available to you in addition to, or as a substitute, for insurance.
- What sort of private health insurance is available to you that can help pay for medical expenses?
- Do you have (limited) trauma or income insurances that can help replace any lost income?
- Do you have any assets or significant savings that would provide an income?
- Would you receive support from family any friends?
There will likely be a gap, or a sum that should be accounted for to ensure quality of life. Keep in mind that this ‘gap’ is simply a guide; a comprehensive evaluation by your financial planner is required to make the most appropriate decisions.
Paying for Premiums
You can generally pay for premiums in one of two ways:
- Stepped Premiums. Recalculated at each policy renewal, usually increasing each year based on the higher chance of a claim as you age.
- Level Premiums. Charge a higher premium at the start of the policy, but changes to cost aren’t based on your age so increases happen more slowly over time.
Some premiums might be paid through other means, such as Superannuation, and the choice of payment type has a notable impact on the cost of the premium.
Each premium has a varying set of features that should be compared to identify the most appropriate product for your circumstances. Ensure you check the following:
- if it covers ‘your own occupation’ or ‘any occupation’
- waiting periods before you can claim
- limits on cover
- premiums – now and in the future.
‘Cheaper’ policies might have more exclusions, and far fewer benefits.
Disclosing Information to Your Insurer
You are a risk investment for an insurance agency, and you’re required to disclose any and all information that might impact upon their decision to cover you with TPD insurance. Failing to disclose important information may negate any claim that you might be paid in the future.
The basic questions an insurer will ask include the following (all will impact upon the cost of a premium):
- Your age
- Your job or occupation (each occupation includes a risk score)
- Your medical history
- Your family history, such as a history of disease
- Your lifestyle (for example, if you’re a smoker)
- Any high risk sports or hobbies (such as skydiving or horseback riding)
A medical examination may be required depending upon your circumstances and history. The outcome of the medical may impact the type of insurance each insurer will provide.