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Total and Permanent Disability Insurance (TPD Insurance)

If you become totally and permanently disabled, it can be very difficult to support yourself and to meet your financial needs. You may have high medical bills that are not covered fully by health insurance, as well as other ongoing living expenses that you need to be able to pay. Total and permanent disability insurance (TPD insurance) is an optional add-on to a life insurance policy that makes it possible for you to receive money to live on so a disability does not devastate your financial life.

What is total and permanent disability insurance?

Total and permanent disability insurance, or TPD insurance, is an optional add-on when you purchase a life insurance policy. For a small additional costs, you can ensure that you will have the funds you need in case you become disabled. It is also possible to purchase a standalone TPD policy.

Total and permanent disability insurance provides a lump sum benefit if you qualify as disabled under the policy terms. The lump sum benefit is typically equal to the amount of life insurance coverage that you have. You can use the money to pay off your house, become debt free, and set aside cash in an investment account to provide ongoing income.

Who needs total and permanent disability insurance?

Life insurance generally pays out only if you are diagnosed with a terminal illness that leaves you with 12 months or less to live, or if you pass away. A standard policy will not provide you with benefits if you become disabled.

The Australian government provides some payments and services for people with disabilities through the Department of Human Services. A sicknesses allowance is available for people with short-term medical conditions, while a disability support pension is available for individuals with a physical, mental or intellectual condition that makes working impossible. Unfortunately, not everyone is eligible for these benefits and there is an income and assets support test that you must pass before you can begin receiving pension money. Depending upon the government to provide for you if you become disabled could require to spend down your assets, leaving you without the things you have worked for over your life.

The benefits provided by the government may also be unable to provide you with enough money to maintain a quality of life that you consider comfortable. Instead of hoping that you will quality for these government benefits and receive enough to live on, it is a far better choice to buy your own TPD coverage.

How much coverage should you purchase?

The amount of coverage that you need is going to vary depending upon your dependents and upon your liabilities. If you have significant debts like a large home mortgage or if you want to ensure you will have a larger amount of money to handle your expenses upon disability, you should buy more coverage.

Remember, the amount of coverage you buy for a TPD policy generally cannot exceed your coverage for your life insurance policy if you have combined coverage. A financial planner or insurance advisor can help you to determine what an appropriate amount of coverage is for both your TPD coverage and your term life insurance death benefit.

Are there different types of TPD policies

There are different types of TPD policies including Any Occupation coverage, and Own Occupation coverage.

  • Own Occupation coverage will provide you with a lump sum payment if you become unable to engage in your particular career path, even if there are other jobs you could potentially do. For example, a surgeon who develops a hand condition may no longer be able to perform surgery but could still do many other occupations. Own occupation coverage would make it possible for the surgeon to receive benefits if he was prevented from working in his medical field.
  • Any Occupation coverage will provide you with a lump sum payment if you are not able to do any type of occupation that you are trained for, suited to, or capable of as a result of your disability.

You should consider whether you would be willing to try to find work in a different field if you become disabled and cannot do your job.

Can a homemaker obtain TBD coverage?

TPD home coverage provides a lump sum payment to someone who becomes unable to perform typical domestic duties as a result of a disability. The services that are provided by a homemaker can provide significant value to a family and can be very expensive to replace. Even a person with no formal job outside of the home should strongly consider purchasing TPD coverage.

Are any benefits available for short-term disability?

Partial and permanent disablement benefits may be available in a TPD policy. For example, if you suffer the permanent loss of use of one leg, one arm, or one eye, you may be entitled to receive 25 percent of the total TPD sum that you would be paid out if you became permanently and totally disabled. You should check with your insurance provider to determine if these types of benefits are available and what partial disability makes it possible for you to quality.

Can you purchase a stand-alone TPD policy?

While many people purchase a TPD policy as an add-on to their life insurance policy, it is also possible to purchase stand-alone policies. You should carefully consider different options for insurance coverage, comparing premiums and coverage amounts, to determine what TPD policy and life insurance cover is right for you.

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