Many working Australians have TPD insurance either through their employer or through their super fund. Unfortunately, for many people, this means they are under insured, paying too much for their insurance, or they have the wrong type of insurance to cover their needs. We answer your questions and help you compare covers so that you can take control of your TPD insurance.
Total and permanent disability insurance, as the name suggests, pays out a benefit if you become permanently disabled. This could be as a result of an injury, such as losing the use of your legs in a car accident, or caused by illness, such as losing the use of your legs due to diabetes.
The benefit is usually paid out as a lump sum, and there are no restrictions on how you can use the money. You may choose to spend it on living expenses, like food and bills, or to pay off medical expenses. TPD is particularly useful if you need to make modifications to your home, like installing a ramp for wheelchair access, or if you need to pay for a carer.
Your premiums will be based on your personal circumstances. The insurer will usually ask for the following information when you apply for a policy:
Each insurer defines disability differently, so it’s important to read your policy document carefully. However, most policies fall under a few broad categories:
Some insurers offer partial benefit payments if you are partially disabled, according to their policy definition. For example, if your policy defines disability as losing vision in both eyes, you may be eligible for a partial benefit if you lose sight in one eye.
It’s important to note that intentional self-inflicted injury is automatically excluded in most policies.
If you become disabled, you’ll need think about how you will cover your expenses. Do you have enough savings and assets to be comfortable if you can never work again? Will you have enough money to pay for medical bills, long-term therapy, and modifications to your home? Do you have a support network of friends and family who can help with your care, or enough money to pay for professional carers? If your answer to any of these questions is no, then you may need TPD insurance.
Here are just some of the ways TPD insurance can help you:
When comparing TPD policies, many people look at how much the premiums cost. However, it’s also important to look at what the policy covers to ensure you’re getting the best value for your money.
We discuss some of the main features of TPD policies and how they affect premium costs, to help you decide which policy offers the best value for your needs.
Own vs Any occupation
Any-occupation policies are usually much harder to claim than own occupation. Only very severe disabilities would leave you unfit for any type of work at all. For that reason, any-occupation policies tend to be much cheaper than own-occupation policies.
Premium type
The older you are, the more expensive your insurance will be. For this reason, TPD premiums can change over time. These are the three main types of premiums available:
Benefit amount
The higher your benefit amount is, the higher your premium is likely to be. If you have additional features, such as a benefit that is indexed to inflation, it can cost you extra.
Packaging insurance
You have the option to buy a stand-alone TPD policy or package it together with other types of insurance, such as life insurance. Packaging your insurance can work out cheaper, but it’s important to note that your policies could be linked. That means, if you claim your TPD benefit, your life insurance cover may decrease by the amount you were paid.
Waiting periods
Some disabilities are obviously permanent, while others may improve over time and with medical care. For this reason, some benefits are paid out straight away, while others may be subject to waiting periods that allow the insurer to assess your disability over time and see how it stabilises.
TPD policies with longer waiting periods are usually cheaper, but you will need to financially support yourself until the benefit is approved.
TPD insurance is subject to different tax laws within super than it is outside of super. Here are the main differences:
Premiums
TPD premiums outside of super are not tax-deductible.
Within super, there may be deductions available depending on the type of fund and type of insurance you have. Your fund will organise these directly with the ATO on your behalf.
Benefit payments
If you have TPD insurance outside of super, and you receive a benefit, you will not need to pay any income tax on the money you receive, provided you are both the policyholder and the life insured.
If your insurance is through your super and you’re eligible for a benefit, the insurance company will pay it directly into your super fund. When you withdraw it from your super, it will be subject to super taxes.
Income protection covers you for temporary illnesses. It provides you with a regular income for a limited period of time. However, if you are permanently disabled, the income protection may not cover you, or it may run out after a while.
Though many Workcover policies include a disability component, you will only be able to make a claim if your disability is due to an injury that happened at work. If you are injured outside work, or if you have an illness that causes disability, Workcover won’t help.
Private health insurance can help you cover some of the medical expenses associated with having a disability. But if you need to make modifications to your home to accommodate your disability, private health insurance won’t cover the cost.
This type of insurance aims to cover medical costs that are not covered by Medicare or private health insurance, such as rehab. The benefit is paid as a lump sum, but the policy will only cover a few specific illnesses. TPD is usually much more comprehensive and has higher benefit amounts.
The NDIS is a Centrelink benefit that is paid to disabled people as an income. It generally only covers very severe disabilities that prevent people from taking care of themselves. The amount is standardised, so you don’t get to choose how much you are covered for. TPD, on the other hand, allows you to choose your benefit amount and is paid out as a lump sum.
It’s important to note that TPD insurance through your super is very different to TPD outside of super. Below, we’ve listed some of the main pros and cons of having insurance in your super to help you decide if it’s the best option for your circumstances:
If you get default insurance through your super, you don’t need to answer questions about your health and lifestyle, making the process far more convenient than buying insurance yourself.
Because the super fund is insuring a lot of people under a group policy, they can often negotiate cheaper premiums with the insurer than you would get as an individual.
When you have TPD insurance through your super fund, the premiums are deducted from your super balance. This can be a good option for people who may not be able to afford TPD outside of super.
When you claim a benefit through your super, the insurer pays the money to your super fund. You can then choose to withdraw it as a lump sum or in smaller chunks over time. Outside super, some insurers do offer to pay your TPD as an income rather than a lump sum, but you don’t receive investment returns on the money as you would otherwise.
TPD insurance in super usually ends at age 65 or 70. If you want TPD insurance past this age, you’ll need to find an external insurer.
When super funds give you default TPD insurance, you are covered for a set amount which is usually determined by your age. If you want more insurance, then you’ll need to apply and complete medical checks.
By paying for your TPD insurance through super, you are effectively decreasing your retirement nest egg.
When your TPD insurance is linked to your super, it can be cancelled according to the fund rules. Many funds cancel your insurance automatically if your super balance falls below a certain amount or if you stop receiving employer contributions. In these cases, if you want to reinstate your TPD cover, you’ll need to apply and complete all the health checks again.
Because superfunds have group policies that cover all their members, there’s not much room for flexibility or individualising policies. Policies outside of super offer many more features such as indexing benefits to increase in line with inflation or giving you the option to insure two lives on the same policy.
A majority of super funds only offer any-occupation TPD insurance. If you want own-occupation insurance, you’ll need to find it outside of super.
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