Investor Education > Life Insurance > Total & Permanent Disability Insurance

WHAT IS TOTAL AND PERMANENT DISABILITY INSURANCE?

Approximately 1.7 million Australians aged under 65 years of age are living with a physical disability.
Australia’s Health 2004 – Australian Institute of Health and Welfare, 2003

Total and permanent disability insurance (or TPD insurance) provides a lump sum benefit if the insured becomes totally and permanently disabled as defined by the policy. The definition may require that the insured is unable to work in their own occupation, or that the insured is unable to work in any occupation (the insured will normally select a total and permanent disability definition when applying for the policy).

Why buy TPD insurance?

The lump sum payout provided by a TPD insurance policy will assist with funding ongoing medical costs related to a disability, and fund ongoing repayments on home loans and ongoing living expenses. Where necessary, it might also be used to pay for necessary home modifications and/or to arrange home assistance like nursing or cleaning.

How much cover is required?

When considering TPD insurance it is prudent to ask whether you and your family would have sufficient savings to pay ongoing expenses and the additional expenses that may arise if faced with a permanent disability. This includes continuing to meet financial commitments such as mortgage payments and ongoing living costs, as well as paying for the unavoidable expenses related to the disability. Total and permanent disability cover can be arranged as a standalone insurance policy, or as an extension to a term life policy. Some superannuation funds may also offer TPD insurance.

If unsure about the right amount of cover, advice from a professional is recommended. It is also recommended that the lump sum insured be reviewed regularly, especially with changing circumstances that may effect whether the TPD insurance sum insured continues to be sufficient.

Features and options

When applying for TPD insurance, the insured will generally need to choose between an “own occupation” or “any occupation” definition. Full details will be available in the product disclosure statement – own occupation requires that the insured is unable to work ever again in their own or normal occupation, whereas any occupation requires that the insured is unable to work ever again in any occupation for which they are reasonably suited by education, training or experience.  Depending on the policy, specialised definitions for professionals and homemakers may be available.

Taxation of TPD insurance

When held outside of super, total and permanent disability insurance premiums paid are generally not tax deductible, however the lump sum benefit paid when making a TPD insurance claim is generally paid tax free.