Are You Covered? A Guide to Total and Permanent Disablement Insurance

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Total and Permanent Disablement (TPD) is a type of insurance benefit that people can take out to cover themselves in the event that they suffer an accident which significantly affects their work and earning capacity. It is particularly attractive to people who have others that depend on their income. As with most types of insurance, the level of coverage can be altered depending on a person’s needs and circumstances at each point in their life. Premiums are calculated and may increase or be reduced based on the level of coverage taken out and other life events. Definitions of Total and Permanent Disablement Unlike WorkCover or Transport Accident Commission (TAC) benefits, which are governed by legislation, TPD and other insurance benefits are contractual and so the terms and conditions of each policy will be different. The two definitions of TPD are the following:

  • The ‘any occupation’ definition, which relies on evidence to show that you are incapacitated for any gainful employment that you are reasonably qualified for by education, training or experience.
  • The ‘own occupation’ definition, which will qualify you for a benefit if you are unable to perform the job that you were performing at the time of the accident or diagnosis of illness.

It is important to note that for MySuper members since 1 July 2013, and for all other fund members since 1 July 2014, it is no longer possible to take out own occupation policies. All TPD benefits are required to conform to the any occupation definition as provided in the Superannuation Legislation Amendment Regulation 2013 (no. 1). Members that have existing own occupation policies will continue to be eligible for payment of that benefit on the terms that they originally contracted to. Policy features While the definition of TPD and eligibility criteria vary from policy to policy, people are generally entitled to this type of benefit if due to any illness, injury or combination of injuries, they meet either of the definitions outlined above. It is therefore restricted to people who have suffered significant incapacity as a result of their accident. Typical features include:

  • A six-month wait period before a claim can be made. Note that in keeping with the outlined changes above, this wait period has been reduced to three months for policies taken out after 1 July 2014, or 1 July 2013 for MySuper members.
  • An exclusion period or inability to claim for pre-existing conditions.

Finding fault TPD benefits do not require a third party to be responsible for your accident or that any negligence is established. Therefore, unlike TAC, WorkCover or Public Liability damages, TPD benefits can still be claimed where you cause your accident or no one was responsible. It is important to note that you will need to submit medical material to support these types of claims. The cost of this material is to be paid by the policyholder and cannot be reimbursed by the institution providing the insurance. What to consider once a claim is accepted Once a claim is accepted and a benefit becomes payable, there are a number of important considerations. These include:

  • Tax implications will be based on your age.
  • The payment amount is determined by your balance as opposed to the insurance benefit.
  • There may be asset tests and exclusion periods for Centrelink and other benefits.
  • You may be able to choose whether you take the lump sum or reinvest into the superfund or another wealth management options such as an annuity. Each of these choices will have their own tax implications.

It is therefore important to reflect on your financial and personal circumstances and the consequences of each choice you make. Many funds provide financial consultants free of charge for their members once payments of a benefit are finalised and this may be of interest to some people. Taking out TPD Insurance Ultimately whether to take out a policy, the level of coverage and payment of the benefit after a claim is accepted are all individual decisions. However TPD insurance does provide a level of coverage that does not require fault of a third party and can be an essential level of financial support at a difficult period in yours and your family’s lives. With such assistance available on a no fault basis, we believe that it is an opportunity with many Superannuation Funds that should be strongly considered.