Total and permanent disability (TPD) insurance
A permanent injury or illness can make it difficult or impossible to return work. TPD insurance can provide a financial safety net to help support you and your family, and pay for medical and rehabilitation costs.
What TPD insurance covers
TPD insurance pays a lump sum if you become totally and permanently disabled because of illness or injury.
EIt is important to understand that each insurer may have a different definition of what it means to be totally and permanently disabled. It can cover you for either:
- 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.
Reading and understanding the product disclosure statement (PDS) helps to ensure you know how your insurer defines a total and permanent disability, however this is where a professional financial planner can help. If you have questions about a policy you hold, contact your adviser to discuss these.
Deciding if you need TPD insurance
When deciding if you need TPD insurance, and how much, think about the expenses you’ll need to cover if you were permanently disabled and unable to work. These could include:
- living expenses for you and your family
- repaying debts such as a mortgage or credit card
- medical and rehabilitation costs
- savings you want for retirement
Also think about what you have that could help pay for these costs. This could include:
- private health insurance that can help pay for medical expenses
- if you have trauma or income protection insurance, that can help replace lost income. You may hold these insurances through your super fund
- any savings or investment you could sell
- what support from family or friends may be available
The gap between the amount you have and the amount you’ll need can be a guide as to how much TPD cover you may need, however working with a financial planner is a good approach to ensuring you have the insurance you need and thus, money when you need it most.
If you need help deciding if you need TPD insurance, and how much, speak to one of our team of advice professionals.
How to buy TPD insurance
Check if you already hold TPD insurance through your super. Most super funds offer some level of default TPD cover. You can increase your level of cover through your super fund if you need to. You can also acquire TPD insurance from a financial adviser.
TPD insurance can be bought on its own or packaged with life cover. If it’s packaged, your life cover may be reduced by any amount paid out on a TPD claim. Check the PDS or ask your financial adviser.
Before buying, renewing or switching insurance, check if the policy will cover you for claims associated with COVID-19.
TPD insurance premiums
You can generally choose to pay for TPD insurance with either:
- 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
Your choice of stepped or level premiums has a large impact on how much your premiums will cost now and in the future.
Compare TPD insurance policies
Before you purchase TPD insurance, your adviser can compare policies to make sure you get the right one for you. In doing so, they’ll take into account a range of variables including:
- if it covers ‘your own occupation’ or ‘any occupation’
- waiting periods before you can claim
- limits on cover
- premiums – now and in the future.
A cheaper policy may have more exclusions, or it may become more expensive in the future.
Compare how long different insurers take to pay a TPD claim and the percentage of claims they pay out.
What you need to tell your insurer
You need to tell your insurer anything that could affect their decision to provide you with TPD insurance. You need to give them this information when you apply, renew or change your level of cover.
Insurers usually ask for information about your:
- medical history
- family history, such as a history of disease
- lifestyle (for example, if you’re a smoker)
- high risk sports or hobbies (such as skydiving)
If an insurer doesn’t ask for your medical history, it may mean their policy has more exclusions or narrower policy definitions.
The information you provide will help the insurer to decide:
- if they should insure you
- how much your premiums will be
- terms and conditions for your policy
It is important that you answer the questions honestly. Providing misleading answers could lead an insurer to decline a claim you make.
With so many different thngs to consider, it is wise to work through your options with a financial planner who can help you explore ways to make the most of every area of your finances. If you would like to know more, feel that you or anyone you know requires advice, or would simply like a review of your financial situation, please visit our contact page call our office today to arrange an appointment on (07) 5574 0667.
We encourage all of our clients and colleagues to Like and Follow us on Facebook as we will be posting exclusive content including business updates throughout 2021.
Note: This communication (including taxation) is general advice only and does not consider your personal circumstances. You should consider whether the information is appropriate to your individual needs, and not act on any information without obtaining professional financial advice specific to your circumstances. This communication including any attachments is intended solely for the use of the individual to whom it is addressed. Any unauthorised use, dissemination, forwarding, printing, or copying of this communication including any attachments is prohibited. It is your responsibility to scan this communication including any file attachment for viruses and other defects. To the extent permitted by law, we will not be liable for any loss or damage arising in any way from this communication including file attachments.
The information has been given in good faith and has been prepared based on information that is believed to be accurate and reliable at the time of publication. The information is general in nature and does not take into account your particular financial needs, circumstances and objectives.