TPD insurance, or Total and Permanently Disabled cover is a lump sum insurance that provides you with funds in the event you are unable or unlikely to work again, due to illness or injury. While this insurance can be of great benefit to the insured if they can no longer work, there are a number of factors to consider and we look at a few of these here.
What does TPD cover pay for?
In the event of a claim, a TPD benefit is paid as a lump sum. This lump sum can generally be used however the insured wishes. This might include making modifications to the home, paying off a mortgage to reduce the impact of mortgage repayments on the household budget or purchase medical equipment. It might be used as a lump sum to fund an income stream that has otherwise been lost as the insured can no longer work.
There is no specified or ‘right’ level of cover based on age, occupation or other demographic. Each person is different and as such should work with an adviser to help ascertain an appropriate level of TPD insurance cover.
What is covered by TPD insurance?
TPD cover is a lump sum that pays out if you can no longer work, due to illness or injury. While there are a few important differences among policies, generally a person must be off work for between 3 to 6 months and be deemed by their insurer as never likely to return to work again.
Depending on the policy, the definition of ‘work again’ is based on one of the following; ‘Own Occupation’, ‘Any Occupation’ and ‘Home Duties’.
Own Occupation basically means the role in which you hold and have stipulated as yours on the policy.
For example, if a carpenter lists their occupation as carpenter and they can no longer work as a carpenter, they may be able to claim. This applies even if they may be able to do an alternate role, such as an administrator preparing quotes in an office environment only.
However, under an Any occupation policy, the same carpenter may not be able to claim, if they could manage to be an administrator, but not a carpenter. This is because they can do any role related to their previous job.
The big difference between Any and Own is whether you can do your Own job or Any job related to your previous experience or role.
What about TPD for those who are not in gainful employment?
For those without a job, such as stay at home parents, a Home Duties definition may be useful. Under Home Duties the role of caring for children and managing the domestic chores of a home is treated like an occupation. Should the insured be unable to complete these important duties, they may be able to claim on their TPD policy.
I have income protection; why would I want TPD?
While income protection can provide an ongoing income up to age 65, the benefit amount is usually only 75%-85% of the insureds income. This shortfall means that the insureds budget will be reduced, even on claim. Add to this extra medical bills and other expenses of being disabled and a lump sum can be handy to manage finances.
Another way to think about this is that income protection pays day to day expenses, like bills, groceries and petrol and a lump sum insurance, like TPD, pays out debt, can be used as a lump sum for superannuation (retirement) or capital expenses on the family home.
Can I have TPD cover in my super fund?
TPD cover is generally offered by your superannuation fund, often at competitive rates. However, most policies held in super are generally ’Any’ occupation, due to the important release rules surrounding disability and superannuation benefits release. These premiums are usually paid for from the superannuation balance, which reduces the impact of premiums on personal cashflow, but does reduce the amount available in retirement.
Is TPD cover tax deductible?
Generally, TPD cover is not tax deductible, if premiums are paid from your personal cashflow. However, upon receipt there is no tax payable.
If you hold your TPD cover in your superannuation, your superfund may claim a tax deduction and credit this to your account, but you may be liable to pay tax, in the event of a claim. This is important to consider, when determining the amount of cover needed, as tax may be payable if you claim.
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