Total and Permanent Disability (TPD) Insurance
Total and permanent disability insurance can help pay for care and medical expenses in the event of a sudden serious illness or accident.
None of us can predict the future, and few of us like to think about it – especially when it comes to considering worst case scenarios. In Australia, our overwhelming preference is to take the out of sight/out of mind approach. This has led to 95 per cent of us lacking adequate levels of insurance, according to the 2011 Lifewise/Natsem Underinsurance Report. Yet the report also calculates that over the next 10 years more than one million working-age parents with dependents will be affected by death or an illness or accident.
That’s where TPD insurance comes in. It is designed specifically to safeguard against financial hardship from serious illness or accident by providing a lump sum payment that can be used as an income stream to pay off debts, cover medical/rehabilitation expenses and pay for home care. All of these income needs can quickly erode savings and adversely affect your family’s lifestyle choices.
TPD cover came in very handy for Sue and Mike*, a couple raising three children on a single-income of $85,000 per annum. When Mike became a paraplegic last year after a serious car accident, he was unable to return to work as a motor mechanic. Thanks to his TPD insurance cover, he received a benefit of $500,000, which was enough to cover the mortgage, as well as refitting the home and paying for a carer.
What does TPD cover?
TPD insurance can be purchased either as a stand-alone product or within your superannuation. It may also be part of a broader insurance package. It generally covers any medically diagnosed illness or injury that is deemed ‘total and permanent’. In other words, a physical condition or psychological disorder (excluding self-harm) that prevents you from returning to work. Some examples of TPD claims include cancers, skeletal injuries, the loss of limbs and loss of eyesight.
Depending on your circumstances, TPD covers you if you are unable to ever work again in ‘any occupation’. It can also protect you if you can no longer work in your ‘own occupation’. Another type of TPD covers those who are not currently employed but are no longer able to perform two out of five activities of daily living, such as eating or bathing.
Taking out TPD insurance generally involves a risk assessment that will take into account your medical and family history, occupational hazards and lifestyle choices such as smoking and other high-risk activities. Depending on the sum insured, a formal medical assessment (including blood tests and other health reports) may be necessary.
Because TPD cover is intended to protect against loss of income, policies taken out by employed people generally expire once you reach the age of 65. However, people over 65 can generally convert to ‘non-occupational’ TPD cover, which may be held until the age of 80.
It’s a good idea to have a chat to your financial adviser who can help you to assess your future financial needs if the worst happens and you need to call on your insurance. While you may have life insurance and TPD as a default option as part of your superannuation accounts, it is important to understand what exactly you are covered for and whether it suits your circumstances and requirements. This will ensure that you are protected properly and that you will be financially secure if something happens.
Did you know that you can also purchase TPD insurance for other family members and even friends? That means you can help protect all of your loved ones from financial catastrophe if they’re not in the position to take out their own cover. Your financial adviser can help you with more information.