A TPD payout is a one-time disability insurance payment for individuals who are unable to work due to illness or injury. These lump sum payments can range from tens of thousands to millions of dollars. However, the amount of a TPD payout can vary and is calculated based on several factors. It can be complicated, so understanding how it works is important.
What affects the amount of a TPD payout?
Several factors influence the size of your TPD payout, including:
- The super fund or insurer that you are in;
- The type of TPD insurance your superannuation fund offers;
- Your age;
- What industry you worked in;
- Whether you got the insurance by default when you joined the fund or applied to get extra cover or bought the policy outside super.
Let’s break down these factors in more detail.
Differences between super funds and effect on TPD payouts
The amount of your TPD payout will be determined by the specific insurance policy that your super fund has entered into on your behalf (if you have not gone out of your way to choose your level of cover yourself).
Most super funds will automatically provide you with life and TPD insurance cover without you having to take any steps to elect that you want cover. However, since the Putting Member’s Interest First (PMIF) changes, which were implemented in April 2020, for your super fund to automatically “switch on” any insurance cover, you must:
- be over 25 years of age; and
- have an account balance of more than $6,000.
Each super fund has a different level of automatic or default TPD cover which is available without any medical checks. It might be necessary to enquire with your super fund directly to check whether you are eligible for a TPD payout at the default cover amount.
If you’re considering making a TPD claim but are unsure about your cover and need help, we can check for you for free.
Types of TPD cover: aged-based vs. fixed
Most superannuation funds offer one of two types of TPD insurance: aged-based or fixed cover. Here’s a closer look at each:
Age-based TPD cover
Age-based TPD cover adjusts as you get older. Generally, this means the amount of coverage decreases with age. As a result, a younger person insured under the same policy may receive a larger TPD payout than an older person.
This adjustment is based on the idea that a person’s financial responsibilities change over time. For example, greater financial protection may be needed when you first take out a mortgage or start a family.
Age-based cover is more common than fixed cover. Most people who haven't changed their TPD insurance and have the default coverage with a large superannuation fund are likely covered under an age-based policy. In this case, any TPD payout would be determined according to the fund's age-based rate.
Fixed TPD cover
Some superannuation funds offer fixed TPD cover, meaning the amount of coverage stays the same throughout the life of the policy, regardless of age. This provides certainty, as you’ll know exactly how much TPD insurance you have at all times.
However, while the amount of coverage remains fixed, the premiums tend to increase over time. If you have fixed TPD cover, your TPD payout will be determined based on the amount of insurance you initially purchased.
Both age-based and fixed cover have their benefits and drawbacks. You can find a more detailed comparison of these options in our earlier blog, “Age-based vs fixed cover TPD insurance”. It's crucial to seek financial advice to determine which type of TPD cover is best for your needs.
Will the industry I worked in change my TPD payout?
Yes, the industry you work in can impact the value of any TPD payout you might receive. Some super funds and insurers classify jobs based on the risk involved and the type of work you are performing.
More high-risk jobs, like those in construction or mining, are more likely to have increased premium rates and might even be subject to different criteria when claiming a TPD payout. Also, if you were working in a high-risk industry, the value of your TPD payout might be different when compared to someone who was working in a less dangerous role.
Can I receive multiple TPD payouts?
Yes, it's possible to receive more than one TPD payout. This may occur if you’ve worked multiple jobs throughout your career and your superannuation contributions are spread across several funds. Each fund could have its own TPD insurance policy in place.
If you have multiple superannuation funds, it’s possible to claim a TPD payout from each fund, as long as there’s active TPD cover in each account when you stop working due to injury or illness.
You can learn more about this option in our earlier blog, “Can I make a claim for a TPD benefit on more than one policy or superannuation account?”
Have you applied to get extra cover or bought the policy outside super?
Most super funds that provide insurance cover to their members also allow their members to make changes to the level of their TPD insurance cover. This means that members of super funds can alter their TPD payout amount while maintaining automatic or default cover. Any changes that you make to your level of cover might be subject to you undergoing a medical test or making declarations about your health.
It is also possible to receive a lump sum TPD payout on an insurance policy that is not held in super. These types of policies are often called retail policies. Retail policies are often sold by insurance companies directly to individuals. Retail policies often lead to much larger TPD payouts when compared to default or automatic cover. Subsequently, the cost of insurance through a retail policy is also usually higher.
Retail TPD policies usually provide TPD cover at a fixed amount and require the policy owner to undergo a medical test or make declarations about their health prior to cover starting.
Seek professional help for your TPD payout entitlements
Understanding your TPD payout is essential before deciding whether to pursue a claim. Every individual’s circumstances are unique, so what applies to one person might not apply to another. Seeking professional advice from a disability insurance lawyer can help you fully understand your situation and clarify what you’re entitled to.
If you have any questions or need assistance understanding your TPD payout entitlements, feel free to contact our team. We’re here to guide you through the process and ensure you receive the support you deserve.
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