Total and Permanent Disability (TPD) Insurance pays a lump sum if you become permanently unable to work due to illness or injury. While it is often thought of as covering the income you’ll no longer earn, its role goes much further – it helps cover the medical, lifestyle and long-term costs that come with a serious disability.
How does TPD work?
If you suffer an illness or injury that means you are unlikely ever to work again, you may be able to make a claim. Typically:
- You must have been unable to work for a period (commonly 3 to 6 months) before a claim can be assessed
- The insurer must be satisfied you are unlikely, even with retraining, to return to your occupation – in some policies this means your own occupation, in others it is any occupation you are reasonably suited to
- Some policies are stricter or more flexible in their definitions, so it’s important to understand the wording in your cover
Once approved, TPD pays a one-off lump sum benefit.
What does it cover?
That lump sum can be used however you choose. For many, it goes towards:
- Clearing mortgages or personal debts so the household budget is lighter
- Funding home modifications, like wheelchair access or bathroom renovations
- Buying mobility equipment or modifying vehicles
- Paying for care services, therapies or ongoing medical support
- Creating an investment fund to replace lost income over the years ahead
Superannuation and TPD
Most Australians have some level of TPD cover automatically included in their superannuation. This can be a useful starting point, but there are important considerations:
- Level of cover: Default amounts are often low, and may fall far short of what’s needed to clear debts and provide long-term support
- Extra rules: TPD inside superannuation has additional conditions – to release the payout, you must also meet superannuation law requirements, not just the insurance definition
- Tax: Lump sum payments from super can be taxed in certain circumstances, depending on your age and situation. Advice at both the cover and claims stage is important to minimise tax impacts
- Outside-super policies: Holding TPD cover outside super may give you different definitions, more flexibility, and different tax treatment
Everyday costs people don’t always see
A permanent disability can bring expenses most families are unprepared for, such as:
- Renovating a bathroom or home to allow wheelchair access (often tens of thousands of dollars)
- Purchasing equipment that needs to be replaced or updated over time
- Paying for in-home care so family members don’t need to stop working
- Covering extra transport, specialist treatment or respite support
These costs come on top of the income you may no longer earn.
Things you might also consider
When reviewing TPD cover, ask yourself:
- Do I only have default TPD cover through super, and is it enough?
- Would my home or car need modifications if I became disabled?
- How much income would my family need to live on long-term?
- Am I clear on how my policy defines total and permanent disability?
- Do I know how my super fund would handle a TPD claim, including tax treatment?
TPD insurance is not about planning for the worst – it’s about preparing for the practical realities of life after a major health event. By covering lost income potential, care costs, and the hidden expenses of recovery, it provides stability at a time when you and your family need it most.
