How would your life be affected if you were to suffer an injury or illness that resulted in you never being able to work again? Without insurance, it would result in financial ruin for the majority of Australians.
Centrelink benefits may be available, but paying a mortgage and raising a family on this income would be impossible. Private school fees would certainly be out of the question. Depending on the situation, funds may also be required for modifications to your home and vehicle to accommodate your changing needs.
The sale of disposable assets, along with savings and credit cards may keep you going for a while, but this is not a sustainable strategy, and would leave a huge dent in your financial goals.
TPD Insurance pays out a lump sum amount in the event of becoming totally and permanently disabled, and unable to perform your own occupation, or any other occupation to which you may be suited by experience or education (depending on the policy definition).
The lump sum payout can be used however you see fit. Common uses include reducing or extinguishing debt, investing an amount which will provide an ongoing income to replace your income, and for home or car modifications that may be required depending on the disability.
Options available with TPD
In addition to selecting the right level of cover with the right insurer, the other big decision to be made is the definition type. There are generally two definitions available with TPD, 'any occupation' and 'own occupation'.
Own Occupation TPD will pay a lump sum in the event that you are unable to work ever again in your own or normal occupation.
Any Occupation TPD will pay a lump sum in the event that you are unable to work ever again in any occupation for which you are reasonably suited by education, training or experience.
The difference in your ability to make a claim can depend largely on which definition you choose. Take the situation of a surgeon for example. If the surgeon was to lose a hand in an accident, he would not be able to continue in his 'own' job, and would therefore likely be paid out if he had an 'own occupation' policy. However, if he had an 'any occupation' policy, the insurer may say that the surgeon could still work as a university lecturer, or any other role within medicine which did not require the use of both hands. Even if the surgeon may have to drop a large portion of his income, the 'any occupation' policy would not pay out.
Another definition available is the 'homemaker definition'. This cover is available for those who are not in the workforce, but undertake home duties that would have to be completed by paid help if the stay-at-home mother or father where unable to continue such duties in the event of total and permanent disability.
Selecting the right options on your TPD insurance is vital, and therefore the expert advice of a financial planner should always be sought before taking out a policy.