What Is DISABILITY Insurance?

Where Term Life cover pays a benefit when you pass away, Total and Permanent Disability insurance only pays a lump sum benefit when you have become totallyand permanently disabled.

Bundle or Unbundle?

Bundling your disability insurance with your Term Life normally gives you a discounted premium. But unless a ‘Continuation’ option is selected, any benefit payout on the disability policy will reduce the Term Life benefit by the same amount.

What’s It For?

TPD cover is designed to help you and your family, financially, should you become disabled.

Research has shown that 1 in 16 people will become so disabled that it will impact on their ability to work.1 This obviously has consequences for their financial situation.

Ask yourself:

  • who will pay the mortgage?
  • who will pay the medical bills?
  • how will you fund the goals your family has, if you were to be disabled?
  • who will pay the car/home/contents/health insurance?

How Much Is Enough?

It’s common for the level of TPD cover to be higher than the Life cover. Why?

Sadly, it’s because you’re ‘still around’. You’ll be incurring costs for the remainder of your life - medical care, home renovations, plus eliminating your debt, replacing income and providing for your family.

A Note on Medical Costs

A lot of people (reasonably) think that their private health insurance will meet all of their medical costs.

Sadly, this is not the case.

The range of medical conditions that can lead to a TPD claim means that there is good likelihood of ongoing medical costs that fall outside private health insurance.

If you were given the chance to access a different form of treatment that could work - but private health insurance wouldn’t cover it - wouldn’t you want to have the means to pay for it yourself?

Super Idea?

Like Term Life, TPD cover can be put into your super fund. But there are serious consequences if this is done incorrectly.

Get professional financial advice in this area, because if you get it wrong, you run the risk of having the whole TPD benefit stuck in your super fund.

And it’s no good to you there.

Occupational Ratings

One of the tests used for whether or not somebody is totally and permanently disabled is whether or not they can still work. So one of the key points with TPD insurance is the occupation definition you’re insured under.

There are two main types:

An Any Occupation definition means that because of sickness or injury, you are unable to work in any occupation for which you are suited by training, education or experience.

An Own Occupation definition means that because of sickness or injury, you are unable to work in your own specific occupation.

Effectively, an ‘Any’ occupation means that if there’s any job similar to yours, that you can still perform, you won’t be paid the entire benefit, because there’s a chance you can return to work.

But with an ‘Own’ occupation, you only need to show that you cannot do your actual role to be able to lodge a claim. In essence, the level of disability you need to prove is lower.

Confused? Think of a Surgeon:

If a surgeon were to irreparably injure one of their hands, their days of operating are finished.

Under an ‘Any’ occupation, the insurance company can argue that the surgeon could still teach medicine, and reduce their payout accordingly.

But under an ‘Own’ occupation, all the surgeon must show is that they cannot, as a result of their injury, do the surgical procedures for which they are trained.

Continue reading: What is Trauma Insurance