Total and Permanent Disability Insurance

Total and Permanent Disability insurance (TPD) provides a lump sum payment if you are totally and permanently disabled before retirement age and are unlikely to be able to ever work again.

TPD Insurance pays the nominated benefit as a lump sum, which can be used for the same purposes as death cover, as well as:

  • covering any gap costs for medical treatment
  • paying for rehabilitation and ongoing care
  • paying for any home modifications that may be required

Types of TPD cover 

In most cases, insurers will distinguish between “own occupation” and “any occupation” definitions and you can choose the cover that suits you best.

You will receive a benefit under the “own occupation” definition if, after becoming disabled, you are unlikely to work again in your current occupation. Under the “any occupation” definition, you will receive a benefit if you are unable to work again in any occupation to which you are suited due to your education, training and experience.

TPD cover is highly important for a spouse or partner who is caring for young children or maintaining the home. The work they do in the home is crucial to the capacity of the income earner. Therefore, many insurers offer domestic duties TPD cover as well. 

Payment of premiums

Premiums for TPD policies held in a personal name can be paid in any number of frequencies (e.g. annually, quarterly, monthly) and are not tax deductible.

Any Occupation TPD insurance premiums may be paid by a superannuation fund and are tax deductible within the fund.  In simple terms, it means that you will be unable to work again in a capacity in which suited your education, training or experience.

Own Occupation TPD insurance cannot be held within a superannuation fund. There is the ability to hold a split policy, meaning the Any Occupation portion can be held within super and the Own Occupation portion can be held outside super.  Premiums are split, with the majority usually being paid by the super fund and the remainder being paid personally.

Payment of benefits

If your policy is held personally and you meet a policy condition, your benefit will be paid to you tax-free.

If your policy is held within super, a condition of release must be met for you to access your benefit. The Trustee of your super fund must be satisfied that you are unlikely to engage in gainful employment under the ‘disability super benefit’ definition. The tax implications of receiving a TPD benefit within super depends on the ‘components’ of the Super fund, the age when disabled and the number of days until retirement. If the benefit is being paid outside of super, the benefit will be tax-free when paid to the nominated policy holder or nominated beneficiaries.

Amount of TPD cover

Similar to death cover, the amount of TPD you require depends on a range of factors, such as:

  • your debts
  • your cost of living
  • provision for medical expenses or ongoing treatment costs
  • age of any dependent beneficiaries and their future needs
  • level of accumulated superannuation and other financial assets.

Over time, your requirements for cover will change. It is therefore important to review your TPD cover and make sure reasonable levels of cover are maintained. By way of example, the older and closer to retirement you are, the level of cover you require will likely be lower. This is because the years in which you will earn an income from your effort have reduced.