Pakenham, Cranbourne & Beaconsfield

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Total & Permanent Disability

A serious accident or illness could leave you unfit to ever work again. If you cannot look after yourself  then not only has your income stopped, but you are now a drain on your family’s financial resources to support you.

Total and Permanent Disability (TPD) insurance pays out a lump sum in the event that illness or injury render you unable to work with no prospect of recovery. Unforeseen consequences of becoming TPD could include nursing care or modifications to allow wheelchair access to your home. The emotional struggle won’t be alleviated but a lump sum may alleviate the financial struggle.

Total and Permanent Disability Insurance (TPD Insurance)

TPD insurance provides a lump sum benefit if the person insured suffers an illness or injury that leaves them unable to work again. The nature of the illness or injury must be deemed permanent by two Doctors, normally a GP and Specialist, certifying the client is unlikely to ever work again. Each insurer determines how long the insured must have been unable to work for before deeming the condition permanent and paying the policy proceeds. Terms are generally in the vicinity of 3 to 6 months.

There are two policy coverage options, “any occupation” and “own occupation”.

Any occupation

The policy pays out if the insured suffers from ill health (whether physical or mental), and two legally qualified medical practitioners have certified that because of the ill health, it is unlikely that the person can ever be gainfully employed in a capacity for which he or she is reasonably qualified because of education, experience or training

Own Occupation

Again the insured must suffer ill health and be under the care of a medical practitioner and be unable “to perform the major duties of their own occupation.”

As the ability to claim is wider, this type of TPD cover is more expensive than ‘any occupation’

Bundled Policy

Total and Permanent Disability insurance is often taken as a “rider benefit” to term life insurance. The covers are bundled together in one policy which pays out on the insured suffering the first event. The facility exists to pay an additional premium which will allow you to ‘buy back’ your life cover after a TPD claim has been paid.

It is, of course, possible to buy TPD as a stand alone policy.

Availability of cover

As the inability to work is the trigger for a claim TPD insurance is targeted at the employed and self employed. Cover is also available for applicants undertaking home duties but the conditions needing to be met to make a successful claim are more stringent..

Entry Age/ Expiry

A new TPD policy is normally available to persons between the age of 16 to 60

Cover is “guaranteed renewable”. Once the insurer has accepted the client they cannot cancel the cover unless the client stops paying premiums.

As long as premiums continue to be paid cover can stay in place until the insured’s 65th birthday.  Most insurers allow the policy to remain in place until age 75 but the cover reduces to only pay out if the insured cannot perform at least 2 ‘activities of daily living’ or suffers severe cognitive impairment.

Level of cover

This is the amount the client applies for. The minimum is normally $50,000 or the amount related to a minimum premium, for instance $220 per annum. The maximum cover is normally limited to $3million.

Premium Options

Premiums can either be stepped or level.

Stepped premiums increase annually on each policy anniversary as the insured gets older.

Level premiums remain constant (apart from increase in cover due to CPI ) for the life of  the policy until the insured reaches age 65. Most insurers have level premiums revert to stepped when the insured reaches age 65.

Level premiums are more expensive than stepped premiums. As stepped premiums increase each year there is a ‘crossover point’  where the stepped premium becomes more expensive than the level. This can be between 5 and 10 years and is client specific. Each client’s circumstances and needs must be considered when deciding between stepped and level premiums.

Who is Total and Permanent Disability Cover appropriate for?

Total and Permanent Disability has been described as “financial death” and is therefore appropriate for the same reason as life insurance. TPD cover is essential for any person who has family or business associates who have a financial dependence on them.

The TPD insurance pay out is used to offset the financial loss resulting from the insured person’s permanent disability.

In a personal context TPD insurance can be used to:-

  • Pay off a mortgage or other debt on the disability of a breadwinner.
  • Invest to provide an income to support the family after the disability of a breadwinner
  • Pay off a mortgage on the disability of a homemaker to allow the breadwinner to spend more time with their children or afford childcare and home help

In a business context TPD insurance can be used to:-

  • Fund business succession in a Buy/Sell agreements
  • Replace lost revenue on the disability of a ‘key person’ to the business
  • Payout business debt
  • Protect personal assets supporting business lending facilities by way of Guarantees

Policy Ownership

Policy ownership is considered for each client’s circumstances and needs. The key difference between Total and Permanent Disability and Life insurance is that the insured who suffers a TPD is still alive and therefore the claim is not an estate planning issue.

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