Total and Permanent Disability Insurance

TPD is a form of life insurance which is designed to protect tradies and other workers from the financial consequences of losing the ability to work.

If you suffer an injury or illness that leaves you unlikely to ever return to work, your TPD insurance policy will pay you a lump sum to be used as you see fit.

In this guide we’ll take a closer look at exactly how this form of insurance can help you, how much cover you should have and how much it will cost you.

What is Covered?

A typical TPD policy will cover virtually any injury or illness (including mental illness) that leaves you unable or unlikely to return to paid work, and therefore unable to earn a living.

Depending on your policy there may be some exceptions. Some policies will exclude deliberate self-inflicted injuries, and some policies may exclude pre-existing medical conditions.

It is up to the medical professionals to determine whether or not you are likely to return to work ever again. Whether or not that diagnosis results in a successful claim depends upon on which TPD definition you have.

TPD Definitions

Each policy will have one of two definitions. These definitions are known as ‘own occupation’ and ‘any occupation’.

Unfortunately many people don’t put enough effort into choosing their preferred definition. They certainly should however, as the definition can have a massive impact at claim time.

The first definition is known as any occupation. To make a successful claim under this policy two or more doctors would need to determine that you are unlikely to return to any suitable work ever again.

The second definition is known as own occupation. To make a successful claim under this policy two or more doctors would need to determine that you are unlikely to return to your own work ever again.

Looking at an example is the best way to show the difference between these two definitions.

Let’s say you’re a cabinetmaker on the tools and you have just lost the use of your right arm due to a crush injury.

If you were no longer able to work as a cabinetmaker due to your injury, you should be able to make a full claim if you have an ‘own occupation’ definition on your TPD.

But if you only have an ‘any occupation’ policy it may be determined that you could still work in an admin or supervisory role, or perhaps you could even teach at a trade college or similar.

So in this example we can see that you could have a successful claim under one definition but not under the other. This is why it’s vial to get the definition right first time.

Generally speaking an ‘own occupation’ policy will be the better option, however it will involve a higher premium and it is not always available for some of the ‘heavier’ trades.

Policy Options

Aside from the definition and the amount of cover required, there are a few other policy options that apply to TPD insurance.

We won’t go into too much detail here, but if you have more questions about these options you should speak with your financial adviser or contact Trade Risk.

You have two options when it comes to the type of premiums you wish to pay. The two options are known as ‘stepped premiums’ and ‘level premiums’.

Stepped premiums start off lower but increase each year as you get older, whereas a level premium will start off higher but not increase each year in line with your age.

Two other options for your TPD policy are known as ‘double TPD’ and ‘life insurance buy-back’. Both of these options only relate to policies where TPD and life insurance have been combined.

How Much Cover do I Need?

The amount of TPD insurance required really depends on your own personal situation as well as your needs and objectives.

Ideally your TPD coverage should be sufficient to repay all mortgages and debts that you have, as well as covering your medical and rehabilitation costs and any potential home or car modifications that may be required.

Let’s say you were left having to use a wheelchair. In this case you would need to make modifications to your home including ramps and lifts, and you would also need to purchase a suitable vehicle to get you around.

These costs can add up very quickly, and whilst you might be able to live without them, your quality of life would be somewhat diminished.

If you don’t have suitable income protection insurance in place you will also need to take into account your future income needs.

Ideally your income protection should cover you through to retirement age, and without it you’ll need a fairly substantial TPD policy to ensure you can survive financially without relying on a disability pension or similar.

TPD Insurers

There are around a dozen insurers offering TPD insurance for tradesmen and other workers in Australia.

Many of these are household names such as AMP, MLC and Zurich.

To the right of this article we have a list of the insurers we use at Trade Risk. You can click on each company name to see which of those insurers offer TPD.

Part of our job here at Trade Risk is to find the most appropriate insurer for you, so you can rely on us to do the running around for you.

How Much Does it Cost?

The cost of TPD insurance will vary depending on a number of different factors.

These factors include your age, smoking status and occupation, as well as the amount of cover you require and the policy options you choose.

For a young non-smoking tradesman the premiums can start from as little as $20 a month for a minimal amount of cover, but as you get older and/or require more cover the cost will increase.

You can save money on your TPD by combining it with other types of cover such as income protection, life and trauma insurance.

Trade Risk can put you in touch with a financial adviser to assist with TPD and other life insurance types.

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