What is TPD Insurance?
TPD Insurance is Total and Permanent Disability insurance
Total and permanent disability insurance (TPD insurance) is one of the life insurance policies available to provide personal financial protection against financial loss arising from an illness or injury that prevents the insured person from returning to (their previous type of) work.
TPD Insurance plays a crucial role as part of wealth protection strategies, providing asset protection when needed most. (Some providers include ‘temporary significant incapacity’ in their policy conditions.)
TPD insurance is offered as an extension to a term life, trauma, or whole of life policy; or as a standalone policy1. TPD insurance means the total disability of the insured according to the definition in the relevant policy. A lump sum may be paid in the event that a person:
- Is unable to work;
- Has lost a limb or sight;
- Is unable to conduct basic daily living activities.
Understand the cover defined in your TPD insurance policy
There are two definitions of being unable to return to work within TPD insurance:
- The first is where a person is incapacitated such that they will never be able to recommence work in any occupation suited to them by education, training, and experience. (This is commonly referred to as the ‘any occupation‘ definition.)
- The second is where the insured has been unable to work for six months and is incapacitated such that they will never be able to work again in their own occupation. Premiums for this type of insurance are about 50% more expensive than for any occupation insurance. (This is known as the ‘own occupation‘ definition.)
We have noted that some group insurance policies, particularly in Industry Super Funds, have further watered down the ‘any occupation’ definition so as to include the inability to be further educated or trained to enter into gainful employment. By making it more difficult to be eligible to make a successful claim under these policies, they have been able to keep the premiums lower.
Who can apply for a TPD insurance policy?
TPD insurance cover is generally available to people aged between 16 and 60 and can be renewed up to age 65. The insured benefit will be payable provided the person suffers total and permanent disablement before age 65 (with the level of the benefit usually tapering downwards from age 61).
Generally, the cover will cease when the insured has not been working full time for at least six months (except as a result of TPD) or upon them turning 65. Cover can be maintained after this age, but will only be assessed on ‘activities of daily living’ (which of itself, is something of a restricted category for claims entitlement). If the TPD insurance cover has been tied to a term life policy, the term life benefit amount will be reduced by the amount of a TPD benefit paid if a successful claim results from incurring a total and permanent disability.
TPD Insurance in superannuation funds
A TPD insurance policy can be held within a superannuation fund. It can be held as part of a term life policy within the fund. Premiums funded through a superannuation account may receive concessional tax treatment. A payment of a TPD benefit from super will have tax consequences which may reduce the final benefit received. For these purposes, superannuation membership may be through a fund established by the Insurer, or it can be through self managed superannuation funds (a SMSF). [Special rules apply to insurance held within superannuation, particularly in respect of the occupation definition that can apply to TPD – and to Salary Continuance; and advice should be sought, especially when insuring through a SMSF.]
At Continuum Financial Planners we see TPD Insurance as an integral part of the financial planning strategies we implement for our clients – and we follow that up with annual reviews, ensuring that the intention to be able to continue to make debt repayments, provide for children’s education, continue wealth accumulation for retirement planning and provision for dependants to be financially secure is preserved over time and with changing circumstances. You can benefit from this service: contact us now for a meeting with a financial planner (that will be at our cost at first instance).
1Policy terms and conditions will vary from provider to provider: for those that best suit any individual circumstance, the proposer should seek the advice of a financial planner who is competent in the area of personal risk insurance.
We acknowledge the substantive input to the content of this article from the Deutsche Bank Desk Caddie. Modifications have been made to adapt it for the readability for our users.
[This post was originally published in March 2010: it has been updated/ refreshed from time to time, most recently in March 2017.]