What is Total & Permanent Disability (TPD) insurance?
A permanent injury or illness can make it difficult, or impossible, to return to work. Total and Permanent Disability (TPD) insurance is designed to provide a lump-sum payment if that happens to you — a financial safety net that can help support you and your family, cover medical and rehabilitation costs, meet everyday living expenses, or pay down debt such as a home loan or personal loan.
This page is general information only. TPD cover is a financial product, and whether you need it, how much, and how it should be held are questions for your licensed financial adviser working alongside your accountant. What follows is a plain-English map of how the cover works so that conversation is a more informed one.
What TPD insurance covers, and the definition that decides it
The definition of "total and permanent disability" varies between insurers, and that definition is the part that determines whether a claim is paid. Cover is typically written against one of two standards. ASIC's Moneysmart describes them as follows:
- Own occupation. You are unable to work again in the specific job you were doing before your disability. This cover is more expensive and is usually only available outside super.
- Any occupation. You are unable to ever work again in any job suited to your education, training or experience. This cover is cheaper, but it carries a higher threshold to claim, so a payout is less likely.
The gap between those two definitions is the whole point — same event, different wording, different outcome at claim time. A qualified financial planning professional should always guide you through the Product Disclosure Statement (PDS) for any product you are considering, so you understand exactly which standard your policy is written to.
Do you need it, and how much
Working out whether you need TPD cover, and how much would be appropriate, comes down to the shortfall a permanent disability would leave behind. The questions worth putting numbers against include:
- What are the ongoing living expenses for you and your family?
- What payout would be needed to clear debts such as a mortgage and credit cards?
- How much might medical and rehabilitation costs run to?
- What figure would preserve a reasonable quality of life into retirement?
Then weigh what you already have that could fill some of that shortfall, in addition to or instead of new cover:
- Private health insurance that helps meet medical expenses.
- Existing trauma or income-protection cover that can replace lost income.
- Assets or savings that could generate an income.
- Support that might come from family or friends.
There will usually be a gap — a sum that needs to be accounted for to protect quality of life. Treat any figure you arrive at here as a guide only. A comprehensive evaluation by your financial planner is what turns that guide into an appropriate decision for your circumstances.
How premiums are priced and compared
You can generally pay for TPD cover in one of two ways, and the choice has a notable effect on long-term cost:
- Stepped premiums. Recalculated at each policy renewal, usually rising each year as the chance of a claim increases with age.
- Level premiums. A higher premium at the start, but increases are not tied to your age, so the cost tends to climb more slowly over time.
Some premiums can also be funded through other means, such as your superannuation, which again changes the net cost. Beyond price, each policy carries a different set of features, and the cheapest option is rarely a like-for-like comparison. Before settling on a product, check:
- whether it covers "own occupation" or "any occupation"
- exclusions
- waiting periods before you can claim
- limits on cover
- premiums, both now and into the future
A cheaper policy often carries more exclusions and fewer benefits — the saving is real, but so is the trade.
What you must disclose
To an insurer, you are a risk to be assessed, and you are required to disclose any information that might affect their decision to cover you. Failing to disclose something material can void a claim you would otherwise have been paid, so the time to be thorough is at application, not at claim. The questions an insurer typically asks — each of which can influence the premium — include:
- your age
- your job or occupation (each carries a risk rating)
- your medical history
- your family history, such as a history of disease
- your lifestyle, for example whether you smoke
- any high-risk sports or hobbies, such as skydiving or horse riding
A medical examination may be required depending on your circumstances and history, and its outcome can shape the type of cover each insurer is prepared to offer.
Because TPD interacts with how your borrowing is structured — what debt sits where, and what would need to be cleared if income stopped — it is worth understanding the debt side of the picture alongside the cover. Book a strategy session if you would like to map how your loans are structured before you finalise that conversation with your adviser.
General information only — not personal financial product or credit advice. TPD insurance is a financial product; suitability, structure and how cover is held are matters for your licensed financial adviser and accountant. AeFin is an Australian Credit Representative (CR 464548) of Finsure (ACL 384704).