What is TPD Insurance?

  • November 21, 2020 12:30 PM AEDT
  • Kunal Sawhney
    CEO Kunal Sawhney
    2781 Posts

    Kunal Sawhney is founder & CEO at Kalkine and is a richly experienced and accomplished financial professional with a wealth of knowledge in the Australian Equities Market. Kunal obtained a Master of Business Administration degree from University of T...

What is TPD Insurance?


  • Among various ways of preparing and protecting ourselves against all kinds of mishaps in life, TPD insurance is one thing that all Australians must pay heed to.
  • Total permanent disability (TPD) is a situation wherein a person is unable to work due to injuries.
  • Insurance companies classify the disability as temporary or permanent and pay out benefits accordingly.
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Life is hard to predict and we can never pe prepared enough to face what future will throw at us. There are several ways we try to prepare ourselves for all kinds of possible mishaps that can take place in future. 

Of all kinds of preparations, people often go for insurances including Total and Permanent Disablement Insurance cover or TPD Insurance cover.

TPD pays the insurance holder a lump sum if he becomes totally and permanently disabled. Each insurer has a different definition of TPD insurance. It can suggest that a person is disabled to the extent that renders one unable to work again and earn a living in their occupation or any job.

Also read: Is it time to switch your health insurance?

Understanding TPD

  • Total permanent disability might include an individual loses the usability of limbs, i.e. not letting the policy holder work in the same capacity as he might had before the injury.
  • Insurance companies categorise disability as per the amount and kind of work that a person is capable to accomplish.
  • The amount of benefit is typically a fixed percentage of the policy holder’s average wage.

An insurer can cover for either

  • One’s own occupation – when an individual is unable to work again in the job. This cover can be expensive.
  • Any kind of occupation – When a person is unable to work again any job suited to his education, training or experience.

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How to plan around TPD?

One needs to decide first if the TPD insurance is needed. After identifying the expenses, one would need the cover if he becomes permanently disabled and is unable to work. These can involve:

  • Living expenses for the person and his family
  • Repaying debts of as a mortgage or credit card
  • Medical and rehabilitation costs
  • Savings one will need for retirement

Also, the would-be policy holder has to ponder upon what he already has that could help him pay for these costs. This largely includes:

  • Private health insurance that can lend some assistance to pay for medical expenses
  • If one has trauma or income protection insurance, that can help replace lost income
  • Any savings or investment one can sell
  • The kind of support that can be availed from the family and friends

Do read: What are extras and how to find the best cover that suits you

The gap between the amount one has and the money they need can basically guide how much TPD cover one might need.

One important thing that should be kept in mind is that there is more to disability than just medical needs. One might need a few home renovations as well so that moving around with a wheelchair, a walker or cane becomes easy.

How to buy TPD insurance?

First of all, one must check if the TPD is already covered in the existing insurance. Most super funds offer default TPD cover that is less expensive than getting it directly. The level of cover can also be increased.

Otherwise, the TPD insurance can be bought from a financial adviser, insurance broker or an insurance company. TPD insurance can be bought independently as well as can be packaged with life cover.

TPD insurance premiums

TPD insurance can be paid with either stepped premiums or level premiums. Stepped premiums are recalculated at each policy renewal, usually increasing every year while, level premiums charge a higher premium initially but in this case changes to the cost are not based on the age, so increases take place gradually.

The choice between stepped and level premiums has to be a thoughtful one as it impacts how much the premiums will cost currently and in the future.   

Don’t forget to compare TPD insurance policies

One must consider a few things prior to buying TPD insurance. If the policy covers ‘your own occupation’ or ‘any occupation’, exclusions have to be considered as well. Also, one must take into account the waiting periods before claim and limits on the cover and premiums. Do not forget that a cheaper policy might have more exclusions, or it may get more expensive in the future. Both the cases are possible.

Information to be provided to the insurer

The would-be policy holder needs to inform the insurer about everything that can impact the TPD insurance. Age, job, medical history, family history, lifestyle, indulgence into high risk sports or hobbies among several other things need to be informed to the insurer.

Based on this information, the insurer will decide if they should provide the insurance or not. Then, amount of the premiums as well as terms and conditions for the policy also need to be decided upon.



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