Life doesn’t always turn out the way we plan. Illness and accidents happen more often than you might think – and
leave you unable to earn a living. But thinking ahead can help. And taking simple action now can save a lot of pain later.
TPD is designed to help take the pressure off you financially if you suffer an illness or injury that leaves you totally and permanently disabled. The lump sum benefit paid is often used to eliminate debts, pay for medical expenses or fund permanent lifestyle changes. For example, moving to a home that is more accessible for your condition.
The definition of what a ‘total and permanent disability’ is will vary depending on the particular product and insurance policy. Most companies allow you to choose whether you want coverage against:
- being unlikely to be able to work again in your ‘own occupation’ following an illness or injury or,
- being unlikely to be able to work again in ‘any occupation’ following an illness or injury
The lump sum payment can be use for
• Reduce your mortgage • Pay for medical expenses • Pay any outstanding debt • Pay for modifications to your home or vehicle
Generally speaking, a range of professional medical advice are used to determine your claim for TPD Insurance. The type of policy and the insurer you have chosen can affect how successful your claim will be. This is why it is extremely important to have your adviser help you select your TPD Insurance to ensure you are covered appropriately and have the best chance to be able to make a claim.
To receive a TPD payment, you must meet the definition that is specified in the insurance policy. Some policies require that you are unable to work in an ‘any occupation’ capacity and some require that you are unable to work in an ‘own occupation’ capacity.
Any Occupation is defined as you are unlikely to return to work at your usual or any occupation which you are reasonably suited to by way of training, education or experience. Own Occupation is defined as you are unlikely to return to work in your own specific occupation.
TPD cover under ‘any occupation’ is less expensive than cover under an ‘own occupation’ policy. It is important to understand that this could prove more difficult to claim on, as the insurer may take into account other training and experience you may have when determining the extent of your disability.
The ‘any occupation’ cover works best if you hold the cover within your superannuation fund, have only ever worked in the one occupation or want the least expensive option. The ‘own occupation’ cover works best if you can afford the higher premium, want a more flexible cover or have had a varied occupation history. Own occupation cover is unable to be held within a superannuation environment.
These definitions are a very important consideration when choosing your TPD Insurance and are key in determining whether you qualify for a lump sum payout in the event of total and permanent disablement.
Insurance policies can be paid from any direct debit or credit card accounts and in some cases by Cheque. If affordability is an issue, your policy may be funded via a partial rollover from most superannuation funds. This will eliminate any out of pocket expenses.
Stepped premiums are generally cheaper to begin with however will increase each year – These increases are due to CPI or 5% whichever is the greater and in the case of stepped a risk loading is applied on every policy anniversary normally on your birthday, or on the policy anniversary date. Therefore, the older you get the higher this risk loading becomes. So stepped premiums increase at an ever increasing percentage as you age making it unaffordable when you need it the most.
Stepped premiums are great for those who require an insurance policy for only a short time
Level premiums allow you to ‘lock-in’ your premium – If you select level premiums, the amount you pay will be based on the Life Insured’s age at the Plan start date and premiums will remain the same other than CPI increases on each anniversary date of the policy renewal. Your premium normally only increase if your Benefit Amount increases or policy modification.
This type of premium initially will be more expensive than stepped premium but can often result in greater savings over the long term. Most importantly, level premiums can ensure that your insurance cover remains affordable and sustainable when you need cover the most.
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