TPD (Total and Permanent Disability) Insurance Versus Income Protection Insurance

Total and permanent disability insurance is not the same as income protection insurance.

Total and permanent disability insurance is a type of insurance that provides a lump sum payment if you become totally and permanently disabled and can no longer work. The definition of total and permanent disability varies between different policies, but generally, it means that you are unable to work in your own or any other occupation for which you are reasonably qualified by education, training, or experience.

This type of insurance is typically used to cover ongoing living expenses, medical bills, and other expenses that may arise as a result of the disability. TPD insurance is designed to provide a lump sum payment to the insured person in the event that they are permanently unable to work due to an injury or illness. It can help provide financial stability and security during a difficult time.

Income protection insurance is a type of insurance policy that provides you with financial support or a replacement income if you become unable to work due to illness or injury. The policy would typically pay out a regular income to the policyholder until they are recovered and are able to return to work, retire, or until the end of the policy term, whichever happens first.

Income protection insurance typically pays out a percentage of your income, such as 50% or 75%, and can be paid out for a set period, such as two years, or until retirement age. This could to a large extent help you maintain your standard of living and cover your expenses while you are unable to earn an income.

It is important to carefully go through the different income protection insurance options available to you, as they may vary based on some factors such as; the waiting period before payments begin, the length of time payments will be made, and the amount of the benefit payment.

Factors that qualify you for TPD and Income Protection Insurance

Some common factors that may be considered before issuing total and permanent disability insurance or income protection insurance include:

1. Occupation: Some occupations are more physically demanding than others, and may carry a higher risk of injury or disability. For example, construction workers or athletes may have a higher likelihood of experiencing a disabling injury than office workers or teachers and will most likely be eligible for TPD and income protection insurance. These occupations may likely require a higher premium.
2. Medical history: Insurers may consider your medical history and any pre-existing conditions you have that could potentially contribute to a disability. Your potential insurance provider may require you to undergo a medical examination before offering you TPD or income protection insurance.
3. Age: Your age could also be a factor in determining eligibility for total and permanent disability or income protection insurance. Typically, younger people may be at a lower risk of disability than older individuals. The younger you are, the lower your premiums will be because you are less likely to have pre-existing medical conditions that could affect your ability to work.
4. Lifestyle factors: Certain lifestyle factors, such as smoking, excessive alcohol consumption, routine participation in risky activities or a history of drug use, can increase the risk of disability. You could be considered a higher risk and will likely need to pay a higher premium for TPD or income protection insurance.
5. Activities of daily living: Insurers may also consider whether you are able to perform basic activities of daily living, such as bathing, dressing, and eating, as this can indicate the severity of your disability.

Advantages of TPD over income protection insurance

• Lump sum payment: TPD insurance provides a lump sum payment in the event of a permanent disability. This payment can be used to pay off debts, cover medical expenses, or support ongoing living expenses while Income protection insurance provides ongoing payments of a percentage of your income for a specified period of time.
• Proof of loss of income:  With TPD insurance, you are not required to prove the loss of your income, or show that you are unable to work. As long as you meet the definition of total and permanent disability in the insurance policy, you are entitled to the benefit payment. Income protection insurance, on the other hand, would require you to submit regular claims and to demonstrate that you are unable to work due to a disability or illness.
• Lower premiums: The insurance benefit for TPD is a one-time payment rather than ongoing payments. As such, TPD insurance premiums are most often lower than income protection insurance premiums.
• Long-term coverage: TPD insurance provides long-term coverage for permanent disabilities, while income protection insurance only covers temporary disabilities. TPD insurance covers you for life or until you reach the age of retirement, whereas income protection insurance usually has a maximum coverage period of two years.
• Coverage for non-work-related disabilities: TPD insurance covers disabilities that occur both inside and outside of work, while income protection insurance only covers disabilities that occur during work-related activities.
• Greater flexibility: With TPD insurance, you have greater flexibility in how you use the benefit payment, as it is a lump sum payment. Income protection insurance may have restrictions on how the benefit payment can be used as it is tied to your lost income.

Disadvantages of TPD insurance over Income Protection insurance:

• Limited coverage: TPD insurance only pays a lump sum benefit if you suffer a total and permanent disability that leaves you unable to work. It does not cover short-term or partial disability.
• Irregular income: TPD insurance does not provide the customer with a regular income stream, unlike Income Protection insurance which pays a portion of your salary or income on a regular basis over a period of time.
• Limited flexibility: With TPD insurance policies, once you make a claim and receive a lump sum payment, your policy ends. With Income Protection insurance policies you continue to receive payments over the agreed period.
• Less comprehensive coverage: TPD insurance only covers total and permanent disability, whereas Income Protection insurance covers a wider range of illnesses and injuries that may impact your ability to work.

In general, Total and permanent disability insurance and Income Protection insurance serve different purposes and it is very important to consider your individual circumstances and needs when choosing which insurance policy to go for.