Life insurance products like total and permanent disability (TPD) and income protection insurance can offer you peace of mind if your health takes an unexpected turn. They may help you financially to continue looking after you and your loved ones and keep your household going.
It's helpful to understand the differences between the two types of insurance so you can choose the right type and level of cover for your needs. Below, we take a look at some of the differences, benefits and features of TPD insurance and income protection insurance.
What is TPD insurance?
TPD insurance pays a lump sum if you become totally and permanently disabled due to a serious illness or injury, making it impossible for you to return to work in your usual occupation or any occupation you're suited to by education, training, or experience. TPD covers a broad range of scenarios that result in permanent disablement, offering a financial back-up when you need it most.
The lump sum payment could be put towards medical and rehabilitation costs, pay bills, and make any lifestyle adjustments or home modifications enabling you to have a better quality of life.
What is income protection insurance?
Income protection insurance covers you if you’re unable to work for an extended period due to illness or injury. It allows you to focus on your recovery and helps alleviate financial stress by providing you with a steady stream of income which can help you to stay on top of bills and keep your household and lifestyle going. You could receive up to 70% of your regular monthly income as income protection benefits if you continue to be off work due to illness/sickness, up to the benefit period. You will start receiving your benefit amount once you have waited out your waiting period.
Coverage and benefits comparison
TPD insurance | Income protection insurance | |
Type of benefit | Pays a lump sum | Pays a monthly benefit |
Purpose | Lump sum benefit for lifestyle changes and medical costs | Ongoing income support while you recover so you can return to work |
Level of cover | Based on individual circumstances and the amount you nominate | Up to 70% of monthly income |
Bundling options | Can be standalone or part of a package | Can be standalone or part of a package |
Eligibility | Total and permanent disablement | Illness or injury causing temporary disablement |
Specific considerations | Own Occupation vs. Any Occupation cover nomination | Waiting Period and Benefit Period nomination |
Key Considerations
Total and permanent disability (TPD)
An important aspect of TPD is that you can elect to be covered for your Own Occupation or Any Occupation. The former carries higher premiums, but it means that if you’re unable to perform your own occupation that you were working in prior to the incident that caused your disability, you can get your lump sum payment. If you select Any Occupation and you’re no longer able to perform your own occupation, you’ll only receive your payout if you’re unable to reasonably perform any other occupation suited to your capabilities, training and education level. For example, a carpenter can’t work onsite, but can work at Bunnings. They would then quality for Own occupation but not Any.
An important aspect of TPD is that you can elect to be covered for your Own Occupation or Any Occupation. The former carries higher premiums, but it means that if you’re unable to perform your own occupation that you were working in prior to the incident that caused your disability, you can get your lump sum payment. If you select Any Occupation and you’re no longer able to perform your own occupation, you’ll only receive your payout if you’re unable to reasonably perform any other occupation suited to your capabilities, training and education level. For example, a carpenter can’t work onsite, but can work at Bunnings. They would then quality for Own occupation but not Any.
Income protection
Two important aspects of income protection that you need to keep in mind are the Waiting Period and Benefit Period. When you take out the policy, you nominate a Waiting Period – the amount of time you have to wait after you become unable to work before you receive any benefit payments. Common Waiting Period durations are typically 30 days, 60 days and 90 days and sometimes longer.
You also need to nominate a Benefit Period – the amount of time you will continue receiving benefits for. Common Benefit Period lengths are 2 years, 5 years, or until the age of 65.
Typically, the longer your Waiting Period and the shorter your Benefit Period, the lower your premiums will be.
While both income protection and TPD insurance are there to protect you against loss of income, they serve different purposes. TPD insurance pays a lump sum designed for substantial life changes following a permanent disability. On the other hand, income protection delivers a monthly benefit aimed at helping you maintain your lifestyle and eventually return to work. When claiming TPD or income protection, you will need to supply medical evidence of your disability and inability to work.
Understanding the differences between the two will enable you to make an informed decision when it comes to buying insurance cover. To compare income protection or TPD insurance from Australia’s top life insurers, try out our free comparison tool.