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1.5 Million Reasons You Should Have TPD Insurance

Have you ever thought about taking out disability insurance and then changed your mind?

Maybe you convinced yourself that an illness or accident would never happen to you. Maybe you thought saving money on annual premiums would cover you if things went wrong.

When it comes to thinking about total and permanent disability insurance (TPD) cover, nobody wants to think about actually needing it, so it can be an easy one to sweep into the too-hard basket.

But this cautionary (and true) tale offers $1.5 million reasons not to ignore TPD insurance cover.

When TPD insurance cover is needed, the payout is life-changing

Jessica* is a self-confessed believer in taking out appropriate cover. 

So, when she and her partner decided the time was right to start a family, she was concerned that her partner didn't take out any insurance.

“He thought insurance was a waste of money,” she says. “But when I got pregnant with our first child, I decided that I would just do it for him, so I paid for an insurance policy covering him for total and permanent disability, or TPD.”

Jessica insured her partner for $1.5 million. If he ever became unable to work and earn an income, the insured amount would be enough to pay their mortgage, and be enough to care for their growing family.

“If he was incapacitated, I was the claimant and he was the life insured,” she explains.

A few years later, the couple welcomed a second child and were out together at a local swimming pool when Jessica’s partner smacked his head on the bottom of the pool.

The shock of the blow inverted his legs and burst some discs in his back.

At the time, he was doing a clerical job in the insurance industry. Their insurance policy specified the payout would cover his inability to work in his ‘own occupation’.

He was still able to work for a while because his job did not require him to be on his feet - but their policy still gave them genuine financial protection for what happened next.

When Jessica's partner was retrenched from his office job, his new role required more intensive manual labour, which exacerbated his back injury.

Because of that ‘own occupation’ clause – and the fact that his ‘own occupation’ required hard physical labour –  Jessica’s partner was unable to work. 

His income protection insurance meant his full income was replaced (a part payout of $800,000 tax free) after the required 30-day waiting period.

This payout helped them meet household expenses.  

Then doctors confirmed that Jessica’s partner would no longer be capable of working in his ‘own occupation’ which, at the time the claim was lodged, was labouring.

A couple of months later the $1.5 million policy was paid out in full.

“We are now mortgage free,” says Jessica. “And we have plenty of money in the bank.”

The money has significantly reduced their financial stress. And, because he can focus on letting his body heal, Jessica's husband has managed to avoid taking heavy duty opioids as pain relief, which he definitely didn't want to do.

Sharing her wisdom and experience helped someone else

With her own insurance planning proving so positive, Jessica advised a hard-working carpenter she knew to look into his own TPD policy.

“He had the policy for about three years when he was diagnosed with really debilitating arthritis in his knees and legs,” Jessica says. “I told him the importance of stipulating ‘own occupation’ cover. He received $500,000, which is the minimum level of cover he’d chosen to take.”

Jessica believes it probably cost him around $1500 a year for three years before receiving the $500,000. This payout enabled him to stop working through crippling pain and, instead, find work that wouldn’t aggravate his physical ailments.

Why is ‘own occupation’ so important on a TPD insurance policy?

TPD insurance pays a lump sum if you become totally and permanently disabled because of an illness or injury.  It’s important to note that each insurer has a different definition of what it means to be totally and permanently disabled. 

TPD can cover you for:

• Your own occupation: This means that you’re unable to work in the job you were working in before your disability. It’s more expensive and is usually only available outside of your superannuation.

• Any occupation: This means you need to prove you’re unable to ever work again in any job suited to your education, training or experience. It’s cheaper but, because you are claiming you are unable to work in any way, it would mean you would need to be seriously disabled. The higher threshold to claim, means it’s much less likely to pay out.

The bottom line

Get very clear on how your insurer defines a total and permanent disability by reading the product disclosure statement. Asking specific questions about your policy is wise - or speak to a life insurance expert like one of Compare Club's TPD specialists.

It’s easy enough to view any insurance cover as a waste of money. After all, it’ll never happen to you, right? But the reality is that we all do know at least one person that ‘it’ has happened to. And with the right cover, the right insurance can help make life a little bit easier.

Go deeper: How much TPD do I need? Pros and cons

Financial disclaimer

The information contained on this web page is of general nature only and has been prepared without taking into consideration your objectives, needs and financial situation. You should check with a financial professional before making any decisions. Any opinions expressed within an article are those of the author and do not specifically reflect the views of Compare Club Australia Pty Ltd.