Wednesday, 8 August 2012

What is TPD Insurance?

With all the different types of insurance out there it is hard to know one from the other.  In my last post I outlined what life insurance was, the different types and whether you should think about getting it or not.  In this post I will be focusing on Total and Permanent Disability Insurance.

What is Total and Permanent Disability (TPD) Insurance?

TPD Insurance is designed for those situations where a persona is completely disabled and unable to work again.  It usually provides a lump sum payment or annuity to take care of you for the rest of your life. 

Note that TPD insurance is not income protection insurance - it does not protect you in the event that you can do some job (even if you are not trained for it).  For example if you are a tradesman or a chef and are injured and are unable to return to your profession but are able to do administration work sitting at a desk (even if you have never done it before) then typically TPD Insurance will not cover this. 

Note that policies are not completely standardised and you need to read a policy very carefully before you sign it.  For example
  • A clause saying that the loss needs to be 'total physical loss' means that the loss has to be in pairs (e.g. both eyes, both limbs or one eye and one limb). 
  • The 'inability to earn' clause is a fairly common clause in TPD policies and means that you are not able to do ANY job at all (see the example above)

Do I really need TPD Insurance?

In my post on life insurance I outlined those situations in which you really should have life insurance and those where it probably is unnecessary.  The answer basically came down to whether you had dependents who needed you to work or your income to survive or not struggle. 

TPD is different - I think all people should have some form of TPD insurance.  This is because when you are injured in such a way that you are never able to support yourself again you need to find a way to live for the rest of your life.  If you have dependents this is even more important because not only will they struggle without your income, you become a liability. TPD Insurance provides cover for you.

Note that I think you should get it even if you do not have dependents or family because you do need to find a way to look after yourself for the rest of your life and unless you are wealthy enough to stop working today and never work another day in your life, the chances are that you will need the money to survive.

If your employer offers TPD Insurance through your superannuation you should take it

Many employers offer TPD Insurance through superannuation plans at no cost to the employee.  I think you should always take this up because it provides you with a cost free fall back.  Of course there are always downsides and in this case the premiums form part of your contribution cap (see my summary on superannuation contributions to understand this area further)

Even if your employer doesn't offer it, I think it is worth investigating and taking up yourself.  There are many insurers out there.  I personally have my insurance through my employers plan so I have no choice as to provider but I'm sure others have done reviews on insurance companies and the best ones to use.  A word of caution though - given the importance of this area penny pinching is not advisable as you want to make sure that the insurer pays out in the event that you really need it.

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