A serious illness or permanent injury can make it impossible for you to return to work. If you’re unable to work, you’re also unable to earn the money you need to support your family and pay for any medical bills related to your condition. Total and permanent disability (TPD) insurance provides coverage for these situations.
What Are The Benefits Of Having Total And Permanent Disability Insurance?
TPD insurance’s main benefit is that it provides you with a lump sum payment if you become permanently disabled. Beyond this lump sum, a TPD insurance policy can have several other benefits, including the following:
Child’s Critical Illness Benefit
This benefit pays a lump sum amount if one of your children experiences a critical illness event between the ages of two and 19. This benefit typically excludes pre-existing conditions and some conditions discovered within three months of taking out your policy.
Premium Freezing
This allows you to keep your premiums the same at the cost of reducing the policy’s benefit amount each year.
Advanced Payment Benefit
With this benefit, you can receive an advanced payment, up to a percentage agreed with your insurer, for certain incidents. For example, you may exercise this benefit if you lose sight in one of your eyes.
Inflation Protection Benefit
The benefit amount increases in line with inflation each year. While this ensures the benefit amount keeps growing as the economy changes, it also affects your coverage and may affect the premiums you pay.
Death Benefit
If you pass away and your TPD benefit is not payable, you will receive whichever is the lesser amount between the benefit and a set figure agreed with your insurance company.
Financial Planning Benefit
You receive a lump sum up to an agreed-upon figure for professional financial advice services you engage after receiving the TPD policy’s benefit amount. Typically, an insurer will place conditions on this benefit, such as providing evidence of visiting a financial planner.
Grief Support
Some policies allow you to add a grief support benefit. This covers the cost of a pre-agreed number of grief support sessions for you or any immediate family members with an approved health provider.
Long Distance Accommodation
This benefit covers some of the cost of accommodation for any family member who needs to travel to support you after you’ve experienced injury or illness. Typically, you must be confined to your bed or a single location and over a certain distance from your home to activate this benefit.
Do You Need Total Permanent Disability Insurance?
You must consider several factors when determining if you need TPD insurance. Key amongst these factors is how much money you and your loved ones will need to survive if you become unable to work. You’re likely a good candidate for TPD insurance if you will continue to need money for the following expenses if you had to stop working:
- Living expenses
- Debt repayments
- Savings
- Medical expenses
You may already have forms of insurance to cover some of these costs, such as private health insurance or trauma coverage. In these cases, ask yourself if the benefit you’d receive from your existing policy is enough to cover your future costs. If it isn’t, TPD insurance may be a good choice to help you bridge the gap.
How To Get Total And Permanent Disability Insurance
It’s fairly simple to buy TPD insurance.
The most comprehensive way of taking out TPD insurance is to do so via a financial adviser who can assist you in determining your needs as well as the product that will suit you most. TPD insurance products are highly nuances and it is crucial that your product matches your needs and lifestyle. TPD policies setup through a financial adviser will typically be superior to what one can take out directly with an insurer or through your super fund. The reason for this is that financial advisers have access to products that have more robust features and benefits than what is sold directly to consumers, either through super funds or via an insurance company directly. Financial advisers have the ability to structure your TPD insurance policy such that it is owned and paid for by your super fund while still having superior features to what you may be able to establish on your own. The premium is also often cheaper than if you go direct to your fund or insurer.
The most common way Australian’s take out TPD Insurance is through their super fund as it is often perceived to be the easiest way. Many Australians receive this cover automatically, without any effort which is the main reason it is so prolific. Alternatively, one can often setup TPD cover by going direct to an insurance company.
Inside Or Outside Of A Superannuation Fund?
We previously mentioned the possibility that you may be able to access TPD insurance via your super. Doing so may be a more convenient way of creating one of these policies. However, there are some pros and cons to consider before committing to a policy inside your super.
The Pros of Having TPD Insurance Inside Your Super
- Your premiums may be tax-deductible to your super fund.
- As your personal deductible and salary sacrifice contributions are taxed at 15%, both are taxed less than the marginal tax rate in the majority of cases. As such, having a policy in your super may be more tax-effective than having one outside it.
- You may be able to pay your premiums using existing super contributions, meaning having TPD insurance doesn’t impact your short term cash flow.
The Cons of Having TPD Insurance Inside Your Super
- Using your super to pay insurance premiums detracts from your retirement savings. The only way around this is to increase your super contributions.
- You may have to pay tax on the benefit amount.
- It’s possible that you may not be able to access the full benefit amount until you retire, though this only occurs in very select circumstances.
Important Details About TPD Insurance That You Should Know
Now that you understand what TPD insurance is and what taking out a policy via your super could mean for you, there are some final important details to understand.
What Doesn’t TPD Insurance Cover
Most insurers will not pay your benefit amount, or any additional benefits attached to your policy, if your injury is self-inflicted or intentional. You may also not be eligible for TPD insurance if you already have a terminal illness benefit attached to your life insurance policy.
When Does TPD Insurance End?
Your TPD insurance policy can end in several circumstances, including:
- You request the cancellation of your policy
- Non-payment of premiums
- Your insurance company determines a misrepresentation or non-disclosure incident
- You pass away
- The policy’s benefit is paid out
What are Exclusions?
Your policy may exclude certain medical conditions. It may also carry exclusions related to certain activities, meaning you don’t receive the policy’s benefit amount if you’re injured as a result of those activities.
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.
