What do I need to know about TPD cover?

You might have heard the acronym TPD before in relation to insurance.

It stands for Total and Permanent Disablement, and means just that; the impairment of mental or physical faculties that completely prevent a person from functioning normally.

Simply: A lump sum amount – the sum insured – is paid if you’re permanently unable to work due to disability, which can be caused by accident or illness.

The objective of TDP cover is to provide a lump sum amount to pay the disabled person’s mortgage, bring down their debt, provide for medical expenses related to their injury or illness, and offer financial support to their family.

It is also used in business succession planning to cover key people whose loss would cause financial troubles.

Generally, TPD cover is offered in two forms – ‘any occupation’ and ‘own occupation’.

The more basic, and cheaper, form of insurance is called ‘any occupation,' which means the disabled person has been deemed unfit to work in ‘any occupation' ever again. This is the form of insurance you might see on your superannuation statement if TDP cover is offered by your superannuation fund.

Meeting this definition is difficult, as an individual needs to be incapacitated to the extent that renders them unlikely to ever be able to work again in any occupation for which they are reasonably suited by training, education and experience.

However, there is a more comprehensive form of cover, called ‘own occupation,' which exists outside of superannuation. Own occupation is dearer, but offers a broader definition of impairment, whereby the individual is deemed unlikely to ever be able to work again in the area that they’ve been trained in; that is, their own occupation.

Knowing the difference between the two forms of TDP cover is really important, particularly when it comes time to claim.

As an example, a surgeon may suffer a severe injury to their hands, rendering them unable to perform intricate surgery ever again. Under ‘own occupation’, the surgeon may be deemed as ‘totally disabled’. Whereas, the ‘any occupation’ form of insurance may reason that the surgeon can still operate quite capably as a consultant or general practitioner, and therefore not honour the claim. The devil is always in the detail.

‘Any occupation’ premiums can be funded personally or via super, whereas ‘own occupation’ cover can be paid personally or via a business. Some companies even allow you to link the two forms, paying for ‘any occupation’ within super, and funding the additional cover personally.

In some instances, tax advantages may apply to the premiums; however, this usually means that tax is applied to the benefit paid too.

Due to the intricacies of TPD cover, it’s a great idea to have a chat with your financial adviser to ensure that you have both adequate amounts of cover, and the correct form for your personal and business needs.