Time to read : 4 Minutes
It’s a tough question but it begs to be asked:
How would you support yourself or your family if you could no longer work in your chosen profession due to injury or disability? Would the mortgage be covered? How about any childcare fees? Or that car loan you recently took out on the new SUV?
In my 23 years of experience in advising clients, I can say with certainty that if you don’t have the right insurance in place, you could be up the creek.
And I’ve sadly had to have conversations with people who were young and healthy until their back gave out on them, or they fell off their bike – or worse – their career and income vanished overnight.
There is a happy-ish ending though. I’d recommended these people take out Total and Permanent Disability cover, which gave them a lump sum payout.
Below, I’ll walk you through TPD, as I like to call it, as well as one of the recent claims I’ve dealt with that brings the benefit of TPD to life.
But first, here’s a quick explainer…
What is TPD?
In simple terms it’s a type of life insurance that pays a lump sum amount if you suffer an illness, accident or injury that means you’re unlikely to ever be able to work again – in other words, you’re totally and permanently disabled.
People sometimes confuse TPD with Income Protection which is another form of insurance.
The main difference is that Income Protection provides regular payments to cover a portion of lost income when a person is unable to work – either temporarily or permanently. It is also taxable.
TPD on the other hand is a one-off payment for being permanently unable to work. It is a tax-free lump sum payment.
Important but little known facts about TPD
There are a few pieces of fine print that you need to know if you’re considering a TPD policy. Exclusions are one. For example, keen cyclists should know that not every insurer will cover you for TPD if you’re participating in bike racing.
But the words you should look out for in your policy are “any occupation” and “own occupation”. While many industry super funds offer TPD insurance, the type of TPD within super is typically "any occupation".
What this means is if you can no longer work in your current role, the insurer will look at all the different jobs you’ve held in your working career including your skills, education and training. If they feel you could still work in a past or similar occupation, they are unlikely to pay your TPD.
Here’s an example:
Bazza has been working as a carpenter for the past 10 years but has major back and neck problems making him unfit for carpentry work.
His insurer looks at Bazza’s work history and notices he previously worked in a call centre in telesales. In its assessment, the insurer is likely to conclude that as the call centre work involves no labour work, Bazza is still able to work any other job he’s done before – ie telesales – and therefore not eligible for a TPD payment.
But… if Bazza had taken out a retail policy that was personally-owned TPD – which is a policy bought separately outside of the super fund – he would have had the option to choose "own occupation" TPD.
This means when the insurance company assesses Bazza’s claim, they would only look at the current occupation held – being his "own occupation" – and whether Bazza is fit to do that role.
In this instance, Bazza would no longer be able to do carpentry work and would receive a TPD payment.
Note: under an "own-occupation" policy, TPD can be paid out regardless of the length of time you have been in that job and whether you’re working full-time, part-time or casual.
Be aware: some high risk occupations are not eligible for "own-occupation". Always check the fine print in the Product Disclosure Statement.
The other important, but little known fact about TPD is that people often forget they have a policy. Like my client Mick…
How TPD saved Mick’s bacon
I had made an appointment with Mick to discuss renewal of his policy. Mick has a long, 40-year history of working with horses as a farrier. When I asked him how he was, he confessed that his back was packing up on him.
He was increasingly finding the demands of the job taxing, especially as he had jolting horses to deal with as well. He had been trying physiotherapy and pilates but nothing seemed to help.
I suggested he immediately see a back specialist and after a period of having tests and scans he was told that there was degeneration of the spine and severe arthritis.
His specialist delivered the bad news that he should no longer work as a farrier and it was time to find a new occupation. I’ll hand over to Mick at this point.
“It was not easy to digest the news, but I called Lisa straight away and she said I should put in a claim for TPD, and she helped me every step of the way. This lump sum payment is more than enough to cover my mortgage and the loss of income, which I would have earned if I had worked up to my retirement age,” said Mick.
“I am extremely grateful for Lisa’s honest and intuitive advice. Financially speaking, I don’t know where I would be now otherwise.”
Mick is just one of hundreds of people I've helped set up financially over my career. From bad backs to bike accidents, debilitating diseases to lost limbs, I've seen it all. It's why I'm such a passionate advocate for TPD as I've seen the difference it can make to people's lives.
Bottom line
TPD is one of those insurances that you never want to use. But for those people I know who’ve made a claim, those premiums were worth every cent.
It can also be confusing if you’re not familiar with a lot of the industry jargon. The good news is my colleagues and I have these conversations day in, day out and we’d be happy to help you find a suitable policy.
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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.
