Total and Permanent Disability (TPD) cover provides a lump sum (some companies provide instalments) in the case of you being unable to return to work due to permanent disablement or illness.
Whilst life insurance pays on a person passing away, what happens if you do not pass away but you can never work again?
How will you pay for your mortgage, medical bills, rehabilitation and family expenses?
What is meant by TPD?
If you are going to take out TPD insurance you need to be careful about the definition that you are under with the insurance company. Most of the big insurers have 4 different definitions and this will impact your premiums that you pay. Not all definitions will pay out the money when you make a claim depending on your injury.
Generally stay at home mums take out this definition of cover. You will receive your payout if you are unable to ever perform normal domestic duties.
Under this condition your claim will be paid if you suffer the loss of 2 limbs, sight in both eye or loss of a limb and loss of sight in an eye. You can also qualify if you are unable to perform 2 activities classified as daily living or if you suffer total and permanent loss of intellectual capacity.
Most TPD covers fall under this category. In this instance you will receive payout if your injury/illness prevents you from working in any occupation that you are reasonably suited to do based on your education, training and experience. If you are a teacher and cannot perform this role but you could do a call centre role you will not receive your payout. Generally if you have TPD cover within super, this will be the definition given.
Own occupation is generally the most expensive premium. This definition covers if you are unable to work in your occupation again due to illness or injury. So if you are a teacher and you cannot perform this job anymore, you will receive your payout.
Advantages of TPD within Super
Having insurance within super can be a cheaper option as your premiums are being paid from your super balance, not from cash within your wallet. Your premiums are also being paid from pre-tax dollars and usually there are less medical checks. However TPD own definitions are restricted within super which means if you could do another job your claim will not be approved.
New options to include both definitions
Some insurance companies are now offering a way to move around the lack of flexibility of definitions of TPD. You can now be provided with 2 linked policies, one within super that has the ‘any’ definition and one outside that has ‘own’ definition. The bulk of your premium comes from your super one (utilising the advantages listed above) and then you only pay for the difference between having ‘any’ and ‘own’ for the non-super policy.
This means in event of an injury/illness you are still covered in full for both definitions (ie if you cannot receive the payout based on the ‘any’ definition you can use the ‘own’ definition).
As with any insurance make sure that you understand what you are being covered for. Insurance can be a costly expense and it would be heartbreaking for something to happen only to find out that the company will not pay you. Always read the Product Disclosure Statements and if you do not understand something get expert advice.