A quick look at the differences between income protection and Total and Permanent Disability (TPD) insurance and your options for having both.
What is income protection?
Income protection, also known as salary continuance benefits are a type of insurance where benefits are paid for a defined period; usually 2 years, 5 years or until age 60 or 65.
What is TPD?
Total and Permanent Disability (“TPD”) benefits are usually lump sum payments which are paid to people who cease work due to injury or illness, do no work for 6 months and thereafter are unable to return to work that is within their education training or experience. The definition for TPD varies from policy to policy and the above is simply a summary.
An overview of income protection
If you have income protection, benefits are paid to you if you are:
- forced to cease work due to injury or illness;
- unable to work for the relevant waiting period (usually 30, 60 or 90 days) and after that;
- supported by your doctor (you usually have to provide monthly forms completed by your doctor confirming that you are unable to work.
Income protection benefits are usually paid monthly and calculated based on your earnings before you ceased work. Most often, people are paid 75% of what they were earning before they were forced to cease work. (Note: policy requirements for income protection benefits vary and the above is simply a summary).
An overview of Total & Permanent Disability (“TPD”)
As we said earlier, TPD is a lump sum payment that you are paid if you are considered to be unable to work again (or in some other circumstances).
It’s important to note that not all TPD benefits are the same. Benefits like TPD Assist benefits are paid as a series of lump sum payments paid annually over a number of years provided the individual continues to be unable to work. Further, other super funds do not offer lump sum benefits, but provide lifetime pensions as an alternative ( for example, at the time that this article was written, Super funds PSS and ESSS had this approach). The information in this article does not apply to these types of TPD benefits.
Can I have both income protection and TPD?
Yes. Many people who have income protection cover also have TPD cover. Some people assume that they can’t claim a TPD benefit when they are being paid income protection or similar benefits. This is not correct. Many people wait years before lodging a TPD claim because they think that lodging a TPD claim will end their entitlement to income protection or like benefits.
Most of the time, people can claim, and be paid, a TPD benefit while receiving income protection or salary continuance payments without the TPD payment impacting their ongoing income protection entitlement. However, there are some exceptions.
There are some funds and insurance policies that do stop paying income protection benefits when a TPD benefit is paid. Usually, the types or payments that stop when a TPD benefit is paid are referred to as “temporary”, for example, Temporary Salary Continuance benefits.
In cases where the payment of a TPD benefit ends a person’s entitlement to their income protection or like benefit, the insurer may decide to pay the TPD (even when it has not been claimed) so that they don’t have to pay the claimant as much money.
Sometimes the automatic assessment of the TPD claim is supported by the policy terms (so very dependent on what your specific policy says) and there is nothing you can do about being paid out. Other times it is not, and you can challenge the automatic payment of your TPD benefit. Also, an insurer may decide to pay out a TPD benefit even if you do not actually qualify under the policy terms, just to try to save money. A decision to pay out a TPD benefit when a person does not meet the policy terms can be challenged.
What if my TPD claim is ending my entitlement to income protection?
If you have an entitlement to both TPD and income protection benefits, it is possible that claiming a TPD benefit will end your entitlement to income protection or similar benefits. In all cases where there is an entitlement to both TPD and income protection benefits, we recommend that you contact us for some free advice before lodging any claim.
Find this article helpful and looking for some further advice or assistance? Feel free to get in touch with the writer, Tom Cobban.
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