Total & Permanent Disability (TPD) Insurance

Being unable to work and earn an income because of accident or illness is a reality for many Australians. Without adequate TPD Insurance cover, you and your family could be left without the means to live comfortably and still enjoy life.

Why do I need TPD insurance?

If you were to suffer a serious injury or severe illness you may be unable to earn money for the rest of your life. If this happens you will need money to pay medical bills, clear your mortgage or other debts and cover your ongoing living expenses.

TPD insurance is designed to pay a lump sum if you are permanently unable to work. Insurance companies use different definitions of 'permanently disabled' and some policies will still allow you to work for up to 10 hours per week.

You can choose whether to buy 'own occupation' cover, which will usually pay if you can no longer do the job you are doing when you get sick, or 'any occupation' cover, which will be cheaper but will only pay if you can never work in again any capacity.

How much TPD cover do I need?

The amount of cover you need will be based on how much you are likely to earn during the rest of your working life (most TPD policies expire at age 65). You also need to consider any large debts such as your mortgage.

If you think that your circumstances and responsibilities will change over time you should look for a policy which allows you to increase your level of cover without medical reassessment.

Is trauma insurance the same thing?

TPD and trauma insurances are similar, but there are important differences.

You can make a claim under your TPD insurance if you are permanently unable to work, regardless of the cause. Trauma insurance should pay you a lump sum if you suffer from one of a specific list of major injuries or illnesses, even if you are still able to work.

These insurances work very well when packaged together, with the TPD cover providing a cost-effective back-up for anything not covered by your trauma policy.

How is TPD insurance treated for tax purposes?

In general, TPD insurance premiums are not tax deductable, but a lump sum TPD payout is usually tax-free. There may be additional tax advantages to structuring some of your benefits within an SMSF.

You will need to speak to your financial advisor for specific tax advice in your individual circumstances.

TPD Insurance Case Study

What if your career was ended prematurely?

Doug and Pat were a successful professional couple who expected to continue earning well into their 60s. Doug was a highly-paid barrister while Pat was successfully self-employed. Their children had left home, so their main focus was on saving for retirement, and their main insurance goal was to protect their lifestyle.

When he was 52 Doug suffered a stroke, which ended his career overnight. He lost his ability to communicate properly and needed expensive ongoing medical care. Despite intensive rehabilitation he was unable to return to work, and his wife chose to give up her business to become his carer.

The payment Doug received under his TPD insurance made this possible. The lump sum benefit allowed them to pay off their mortgage, cover Doug's medical bills and invest to generate an income. Without their insurance Pat would have had to continue to work just to cover the mortgage and they would have lost all their hopes of a comfortable retirement.

How to buy TPD Insurance

The best way to get life insurance is always via a specialist advisor. Not only can they find you the cheapest policies, but more importantly they're able to identify the insurance cover which best meets your needs.

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