Total & permanent disability insurance

What is TPD insurance?

Total & permanent disability insurance provides cover if you (as the name suggests) become permanently disabled from a serious accident or illness. Like life insurance, TPD cover pays out as a lump sum & can be held either personally or through your superannuation. Life & TPD insurance are generally provided together within superannuation funds by default, however like these covers may be smaller than required amounts that decrease with age.

How much cover is needed?

TPD generally should be enough to payout large debts (like a mortgage) & also cover disability related expenses such as rehabilitation, medication & house fit out changes. It is especially important not to be under-covered for TPD if you don't have income protection as you will be reliant on a partners income or a disability pension.

How is permanent disablement determined?

Each insurer has different requirements that need to be met to be considered permanently disabled. When purchasing TPD insurance you have two core options for which disablement is assessed:

• "Any" occupation TPD policies are cheaper & paid via superannuation funds. They assess disability on the basis of being able to return to ANY occupation you are suited to by education, training or experience. This definition is more difficult to meet as a wider array of potential occupational areas are assessed. For example, a surgeon may lose an arm, but still be able to perform duties of a general practitioner, thus not meeting the permanent disability requirement.
• "Own" occupation polices provide claimers with the highest probability of making a successful claim. This is due to permanence of disablement being assessed in the context of the persons specific OWN role. Individual duties are taken into consideration, which means our surgeon who lost their arm could make a successful claim (unless he is very skilled with his feet). While own occupation TPD's additional expense may be a deterrent for some, it can be argued the inability to claim despite debilitating injuries is a much more costly situation.

Not all policies are created equal

In recent years more information has come to light about many default superannuation based TPD policies being purposely designed or changed to be especially difficult to claim upon. Some providers have changed wording around the assessment of ability to return to work from "unlikely" to "unable ever". While this might not seem like much, the degree of certainty surrounding the newer definitions means many Australian's are paying for cover that would be difficult to claim.

Furthermore, some providers within Australia's biggest superannuation funds will not payout if they believe the person claiming may be able to retrain for a new occupation, despite the disability. Other providers no longer provide lump sums, and instead require yearly re-assessments in order to keep paying out.

Written by Matt Haggarty of Maxim Private Clients

Disclaimer: This material has been prepared without considering any potential investor's or clients objectives, financial situation or needs. This article is of a general nature and does not consider the individual circumstances of its recipients. Any information contained within this publication should not be misinterpreted as advice in any way. Please consult your financial advisor should you have any questions or concerns

Maxim Private Clients is a Corporate Authorised Representative No 1241929 of Futuro Financial Services Pty Ltd ABN 30 065 870 015 ASFL No 238478