What’s the difference between life insurance and total disability protection?

Last updated on November 25th, 2021 at 02:55 pm by Bill Tsouvalas

Life insurance, as most people understand it, is insurance that your family claims when you die prematurely, due to an accident or unforeseen circumstances. This type of insurance covers the loss of your future earnings. These earnings could have paid a mortgage off, or catered to the wellbeing of dependents. However, life insurance isn’t just “death cover.” Life insurance has more than one narrow definition.

If you have life insurance, you could have total disability protection included in your policy. However, not all “life insurance” policies will include TPD by default. Some insurers may TPD insurance sell policies separately to “life insurance.” It sounds confusing, but life insurance can also be an umbrella term for insurance against wrongful or accidental death, disability, trauma, income protection, and other types of policies.

The “many” types of life insurance

41% of Australians surveyed by LifeWise, an initiative of the Financial Services Council of Australia, say that life insurance is too complicated. 1 in 4 wouldn’t know where to start. This is why “life insurance” can prove quite complicated. The “umbrella term” of life insurance means your policy could cover you:

  • In the event of death
  • In the event of total and permanent injury
  • Against sudden unemployment or redundancy
  • Against prolonged illnesses or trauma that prevents you from working.

Life insurance may provide a lump sum to your family in any of the above scenarios, or give you regular payments as a substitute for income.

Total permanent disability insurance

Total Permanent Disability (TPD) insurance is a type of life insurance that covers you if you are injured and the injury prevents you from working again. This could mean disability such as not being able to walk again (paraplegia or quadriplegia), severed limbs or fingers, neurological damage, and other permanent injuries.

TPD covers you if doctors or specialists determine you are unable to work again in your field of expertise; or are unlikely to work again at all due to an incurable or permanent condition. Your insurance company then provides a lump sum or regular payment, depending on your policy and how much coverage you have elected to take out.

TPD is distinct from trauma insurance, which supposes you may recover from your injuries and return to work at a later stage. Trauma insurance may also cover rehabilitation; TPD may be structured to provide for carers, modifications to your home, and as a means of covering bills such as utilities, mortgages, etc.

If you want to know more about TPD and how you can protect your family with greater peace of mind, talk to one of our consultants.