Life Insurances

What Does TPD Insurance Cover?

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We have all heard about the importance of total & permanent disability (TPD) protection but what does TPD insurance actually cover?

confused-about-life-insurance

What Does TPD Insurance Cover?

A lump sum payment if the Life Insured becomes Totally and Permanently Disabled.

When applying for a TPD insurance policy you can choose between two applications of TPD, where:

  • You can’t work again in any occupation, or
  • You can’t work again in your own occupation.

TPD insurance is designed to assist with the future cost of living in the event you can no longer work, as well as help fund the costs of rehabilitation and care.

Look at the Claim Statistics

To get an idea of what TPD insurance covers, it is useful to look at some actual claim statistics from the insurer TAL:

CHART: TPD Claims by Type in 2014

tal-tpd-insurance-claims-2014

* 2014 TAL claims statistics

As you can see the vast majority of claims were cancer related

Let’s Take a Closer Look 

To find out exactly what your policy covers you need to review the product disclosure statement, which outlines all the terms and conditions for your TPD policy.

In this blog we will examine a TAL TPD insurance policy as outlined in the PDS pictured below:

tal-income-protection-insurance-pds-1-july-2016

When it comes to life insurance you get what you pay for, so don’t judge the quality of insurance cover based on price alone.

‘Any’ Occupation TPD

We have extracted the following definition from the TAL PDS as follows:

Total and Permanent Disability and Totally and Permanently Disabled when Any Occupation is shown in Your Policy Schedule mean that:

  • solely because of a Sickness or Injury, the Life Insured has not been working in any occupation for three consecutive months and, in our opinion, after consideration of medical and any other evidence, is incapacitated to such an extent as to render the Life Insured unlikely ever to be able to work in any occupation for which they are reasonably suited by training, education or experience which would pay remuneration at a rate greater than 25% of the Life Insured’s earnings during their last 12 months of work; or

  • solely because of a Sickness or Injury, the Life Insured has suffered at least 25% impairment of Whole Person Function and has not been working in any occupation, and, in our opinion, after consideration of medical and any other evidence, is incapacitated to such an extent as to render the Life Insured unlikely ever to be able to work in any occupation for which they are reasonably suited by training, education or experience which would pay remuneration at a rate greater than 25% of the Life Insured’s earnings during their last 12 months of work; or

  • the Life Insured suffers: ––Blindness; or ––Loss of Limbs; or ––Loss of a Single Limb and Loss of Sight; or

  • the Life Insured is totally and permanently unable to perform at least two of the five Activities of Daily Living without the physical assistance of another person; or

  • When cover is structured through superannuation, the Life Insured must also satisfy the SIS definition of Permanent Incapacity (a member of a superannuation fund or an approved deposit fund is taken to be suffering permanent incapacity if a trustee of the fund is reasonably satisfied that the member’s ill-health (whether physical or mental) makes it unlikely that the member will engage in gainful employment for which the member is reasonably qualified by education, training or experience.)

Under TAL’s definition of ‘any occupation’ you would need to be off work for 3 consecutive months, or suffer a 25% whole person impairment, and unlikely to recover to a point where you could earn over 25% of your previous salary in any occupation related to your current training, experience or education.

‘Own’ Occupation TPD

We have extracted the following definition from the TAL PDS as follows:

Total and Permanent Disability and Totally and Permanently Disabled when Own Occupation is shown in Your Policy Schedule mean that:

  • solely because of a Sickness or Injury, the Life Insured has not been working in their Own Occupation for three consecutive months and in our opinion, after consideration of medical and any other evidence, is incapacitated to such an extent as to render the Life Insured unlikely ever to be able to work in their Own Occupation; or
  • solely because of a Sickness or Injury, the Life Insured has suffered at least 25% impairment of Whole Person Function and has not been working in any occupation, and, in our opinion, after consideration of medical and any other evidence, is incapacitated to such an extent as to render the Life Insured unlikely ever to be able to work in any occupation for which they are reasonably suited by training, education or experience which would pay remuneration at a rate greater than 25% of the Life Insured’s earnings during their last 12 months of work; or
  • the Life Insured suffers: ––Blindness; or ––Loss of Limbs; or ––Loss of a Single Limb and Loss of Sight; or
  • the Life Insured is totally and permanently unable to perform at least two of the five Activities of Daily Living without the physical assistance of another person; or
  • where the Life Insured has been solely performing Normal Domestic Duties for more than 12 consecutive months immediately prior to the Sickness or Injury that gives rise to the claimable event: ––the Life Insured has not been able to perform the Normal Domestic Duties for three consecutive months; and ––in our opinion, after consideration of medical and any other evidence, is incapacitated to such an extent as to render the Life Insured unlikely ever to be able to perform all of the Normal Domestic Duties.
Under TAL’s definition of ‘own occupation’ you would need to be off work for 3 consecutive months and be unlikely to recover to a point where you could return to work in your own occupation. Alternatively you would need to suffer a 25% impairment in whole person function and be unlikely to ever work in an occupation that would pay more than 25% of your last 12 months salary (when you were healthy). 

Why Have TPD Insurance?

TPD insurance provides a lump sum payment if you can no longer work due to sickness or injury.

By definition a TPD event is significant, therefore the payout is designed to help pay for the future costs of living.

I have Income Protection Do I Need TPD as Well?

Based on the definitions outlined above, income protection insurance will likely be triggered in the event a TPD claim is made.

In this case the TPD payout will help with medical expenses and rehabilitation while the income protection will provide a regular, albeit reduced by 25%, income.

Some Examples

Here is a selection of TPD claims Zurich insurance paid out in 2015 according to the age and condition of the claimant:

zurich-tpd-claims-2015

Insurance is something we pay for but hope we never need to use

Video: Real Life Stories

Other Considerations

1Premium Type:

When it comes to the TPD insurance premium there are two options:

  1. Stepped premium – one that will rise every year, with your age and risk level.
  2. Level premium – one that will remain constant.

Here is the catch; under a level premium you will generally pay a higher premium for the first few years, when compared to the same policy on a stepped premium.

Stepped vs Level

2Expiry Age

As long as you continue paying the annual premium, a TPD insurance policy can last until you are 65 years of age.

3Who Can Own the Cover?

You can hold both own occupation and any occupation TPD in your personal name.

Any occupation TPD is often held through superannuation, because a successful claim will satisfy the conditions of release (i.e. you can draw money from your super fund if you are considered TPD).

Own occupation TPD cannot be held through a super fund due to restrictions in accessing potential payouts.

4Tax Deductibility

According to the ATO website, you cannot claim a personal tax deduction for other life insurance policies such as life (death cover), trauma (critical illness) or TPD (total and permanent disability).

income-protection-ato-no-deduction

On the other hand premiums paid on any occupation TPD held in super are tax deductible to the super fund, but this means TPD payouts are subject to taxation through super. This is a relatively complex area of taxation so it is recommended you seek professional advice in the event of a successful TPD claim in super.

Summary

  • TPD insurance pays a one-off lump sum if you suffer a sickness or injury which renders you unable to work again.
  • The terms of your insurance policy are outlined in the PDS.
  • TPD insurance provides a lump sum to help fund your future living expenses.

Not all insurance policies are the same. Make sure you read the documentation before you sign on the dotted line.

 The Wealth Guy Signature

 

let-me-help-with-your-life-insurance-options-the-wealth-guy
The information on this blog and website is of a general nature only. It does not take into account your individual financial situation, objectives or needs. You should consider your own financial position and requirements before making a decision. We recommend you consult a licensed financial adviser in order to assist you with this.

 

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REVIEW: What is Income Protection Insurance?
GUIDE: Is Income Protection Insurance Tax Deductible?

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