Total and Permanent Disability (TPD) Insurance offers protection in cases where you are seriously injured or become ill to the point you are not going to ever be able to return to work. Typically, TPD insurance pays a lump sum benefit that you receive when such an injury or illness occurs. However, the amount you receive varies depending on how much you your policy covers you for.
That leads you to a question:
How much TPD insurance do I need?
The answer depends on several factors, each of which influences the amount of TPD cover that is right for you.
How Much Should My TPD Cover Be?
The main purpose of TPD cover is to handle most of the expenses you’d usually pay for using money earned from your job. As such, your expenses determine the answer to the question of how much TPD cover do I need?
Factor in the following expenses when choosing your coverage:
- The amount of money you have left to pay on your mortgage. If you’re renting, it’s worth selecting a coverage amount that could cover the cost of buying a home.
- Any other personal debts that you have. Ideally, your cover should be able to clear all of those debts so you don’t have to worry about monthly repayments.
- An estimated sum that covers any modifications you have to make to your home.
- Any money you wish to dedicate to the future, such as college funds for your children.
- Your ongoing household expenses, like groceries, clothes, and maintenance.
- The cost of nursing care and rehabilitation services.
- Any expenses linked to a healthcare plan that are not covered by other types of insurance.
It is also crucial to remember that you may be receiving income protection benefits at this time which can provide a substantial portion of your income should you be unable to work.
Beyond these expenses, it’s also worth accounting for the money you’d lose from no longer having a regular source of income. In other words, you need to have money left over after dealing with expenses to live your life.
If I Already Have Life Insurance, Should I Still Consider TPD Insurance Cover?
Before asking yourself ‘how much TPD insurance do I need,’ it’s worth asking if you need it in the first place. If you already have a life insurance policy, you may feel that you don’t need to take out a TPD policy.
That’s not usually the case.
Most life insurance policies cover you in cases of death or the diagnosis of a terminal illness. While your life insurance policy may include TPD coverage, this is usually an add-on that you have to pay extra for. If you haven’t requested TPD with your life insurance, it’s worth considering a separate TPD policy. Doing so means you can still cover your expenses if you’re left unable to work by an illness or serious injury.
If you’re struggling to come up with an exact figure, speak with an expert and receive personalised advice.
The Main Types of TPD
There are three main types of TPD cover, each of which has different determinants for receiving the benefit attached to the cover.
Type No. 1 – Any Occupation TPD
This TPD covers you in cases where you’re unable to return to any form of employment suited to your education, training or experience. This is one of the cheapest forms of cover. However, it can also be difficult to make a claim on because insurers may be able to argue that some injuries do not prevent you from working in certain types of jobs that you may be suited to.
For example, you may suffer a serious leg injury that prevents you from working in your current role. But the injury does not stop you from working in a more sedentary job, such as office work. In these cases, you may find it difficult to claim your TPD benefit if you are suited to working in such a role.
Type No. 2 – Own Occupation TPD
Own occupation TPD cover is a type of policy that pays a benefit when you’re no longer able to work in your usual occupation. As a result, you can claim on this policy even if your injury does not leave you unable to work in any other field.
Returning to the above leg example, we can assume you work in construction. A severe leg injury may cause immobilization or the loss of the leg. However, this injury does not stop you from getting any office job. Even so, if you have own occupation cover, you still receive your full TPD benefit, even though you can return to work in another field.
This type of cover usually costs more than any occupation. It is generally the most comprehensive TPD product available as it provides you with the greatest chance of claiming. Own Occupation TPD insurance is more appropriate for certain types of people so it is important to seek advice.
Type No. 3 – Activities of Daily Living TPD
Some insurers determine if you can claim your TPD benefit by assessing your ability to conduct daily tasks. Such tasks include dressing, bathing, feeding yourself, and going to the toilet.
If you’re unable to conduct any of these tasks without assistance, you’ll likely receive your TPD benefit. Note that this is not always a standalone form of TPD. Instead, an insurer will likely conduct a daily living assessment as part of determining whether to provide the benefit of another type of policy. This type of TPD insurance is typically what applies to those who are not in paid work.
Do You Need TPD if You Have Income Protection?
Income protection works similarly to TPD cover. It pays an insurance benefit in cases of illness or injury until you can return to work. Typically, income protection has a limited benefit that lasts for a set number of years or extends to a designated age.
The difference between income protection and TPD cover is that income protection does not pay a lump sum. Instead, you essentially receive a portion of your regular income until you are back on your feet.
It’s possible to have income protection and TPD insurance simultaneously. Furthermore, you’ll receive the benefit of both policies in the case of an injury or illness that prevents you from working.
As such, it’s a good idea to take out both types of policies to maximise your protection. As for whether you need to or not, you likely do. While income protection ensures you keep receiving your salary, it may not cover any changes in your lifestyle that you need to fund following a serious injury or illness.
Some Super Funds will prevent you from simulatenously claiming on income protection and TPD insurance. As a result, it is crucial to understand exactly how your cover works before commencing a claim.
General Advice Disclaimer
General advice warning: The advice provided is general advice only and in preparing it we did not take into account your investment objectives, financial situation or particular needs. Before making an investment decision on the basis of this advice, you should consider how appropriate the advice is to your particular investment needs, and objectives. You should also consider the relevant Product Disclosure Statement before making any decision relating to a financial product.
