The complete guide to TPD (total and permanent disability) cover

How would you cope with becoming totally and permanently disabled? It could happen because of a medical event, like a stroke, or it could be the result of a vehicle or sporting accident. While it’s tempting to think this kind of personal disaster will never happen to you, total disability becomes the new reality for a number of New Zealanders every year.

Apart from the emotional and physical adjustments, the financial repercussions of becoming totally and permanently disabled can be huge. You might think “but WINZ pays disabled people if they can’t work”, however the ‘supported living benefit’ is (at most) around $700 to $800 a fortnight before tax. If you have a home loan and kids, that level of income won’t go very far.

Getting a type of life insurance called TPD (total and permanent disability) cover is a way to offset the risk of becoming totally and permanently disabled, and unable to work in your usual or any profession ever again. In this guide we look at how it could be used as a safety net for your financial future.

How is TPD cover helpful?

TPD cover is designed to provide a lump sum payment to help you out if total disability means you can’t continue working. Here are a couple of scenarios that explain why some New Zealanders choose to get TPD cover:

  • Sarah, a nurse, was in a car accident that left her with a permanent spinal cord injury, rendering her unable to work again. She had TPD cover, so submitted a claim and received a lump sum payment. This financial support allowed her to access the best medical treatments, undergo rehabilitation and make necessary modifications to her home.
  • Mark, a builder, was diagnosed with a progressive neurological disorder that gradually affected his mobility and coordination. As the symptoms worsened, he could no longer continue his work in the construction industry. Fortunately, he had ‘own occupation’ TPD cover in place. The lump sum payment he received from his claim allowed him to adapt his living environment, access specialised medical care and train for alternative employment opportunities that suited his new abilities.

What’s the difference between TPD cover and trauma cover?

TPD cover and trauma cover are two different types of life insurance that provide financial protection in the event of certain medical conditions or disabilities. Here’s a quick explanation of the differences:

  • TPD cover is designed to provide a lump sum payment if an accident or sickness means you’re unable to work again. This could refer to work in your usual job or any job, depending on the policy you have. The disability must meet the policy’s definition of ‘total and permanent’ as outlined in the insurance contract. TPD cover premiums are generally lower than trauma cover premiums, because the eligibility criteria for a TPD claim are typically more stringent.
  • Trauma cover, also known as critical illness cover, provides a lump sum payment if you experience a specific medical condition or disability that’s covered by your policy. It’s not contingent on you being unable to work or being permanently disabled.

A few things to watch for with TPD cover

Specific terms and conditions of TPD cover vary between insurance providers in New Zealand, so it’s always a good idea to review the policy documents carefully. There are a few areas that demand extra careful checking:

  • Being covered for ‘own occupation’ means the insurer will pay a claim if you can’t work in the specific occupation you were involved in immediately prior to incapacitation. It accepts that you might be able to return to work in a different occupation.
  • Being covered for ‘any occupation’ means the insurer will only pay out if you can’t work in any type of paid work, which narrows the chance of a successful claim.
  • Some insurers offer ‘domestic duties’ cover, which pays a lump sum if you suffer a sickness or injury leading to a permanent inability to perform full-time domestic duties in your own home.
  • Some insurers offer a partial payment if you lose the ability to use one of your limbs or one eye.
  • Some insurers apply an activities of daily living’ (ADL) test to TPD claims, which restricts pay outs to people who are unable to perform two or more daily activities, such as feeding, bathing, dressing, toileting, walking and transferring from bed. This approach has received criticism from insurance industry watchdogs.
  • Certain occupations or professions may have limitations on the amount of TPD cover available. For example, high-risk occupations or jobs with higher chances of disability may have lower coverage limits or different terms.

TPD cover features and extras

When you’re getting to know the options for TPD cover available in the New Zealand market, it’ll help to understand these policy points:

  • Benefit amount: You can choose the benefit amount you want to be paid if you become totally and permanently disabled. This amount is usually a lump sum payment.
  • Waiting period: TPD cover may have a waiting period, which is the time you need to wait (after becoming totally and permanently disabled) before you can make a claim.
  • Premium options: You can select different premium options based on your preference and affordability. Stepped premiums increase over time, while level premiums remain constant for a specified period.
  • Partial disability benefit: Some TPD policies provide a part pay out if you suffer a partial disability that prevents you from working at full capacity.
  • Indexation: Indexation allows you to increase the benefit amount over time to adjust for inflation. This ensures the value of your TPD cover keeps pace with the rising cost of living.

What are the exclusions?

The exclusions in a TPD policy can vary, depending on the insurance provider and the specific terms of the policy. However, here are some common exclusions that you’re likely to find in TPD policies in New Zealand:

Pre-existing conditions: TPD policies often exclude disabilities or impairments that were present or diagnosed before the policy’s start date.

Self-inflicted injuries or intentional acts: Disabilities resulting from self-inflicted injuries or intentional acts, such as attempted suicide or participation in criminal activities, are generally excluded from coverage.

Mental health conditions: Some policies may have limitations or exclusions related to mental health conditions. They may specify certain criteria or waiting periods before mental health-related disabilities are covered.

Drug or alcohol-related disabilities: Disabilities resulting from drug or alcohol abuse may be excluded from coverage in TPD policies.

Misrepresentation or non-disclosure: If you provide inaccurate or incomplete information on your application or fail to disclose relevant medical information, the insurer may reject a claim because of misrepresentation or non-disclosure.

Exclusions related to specific occupations: Certain hazardous occupations or high-risk activities may have specific exclusions or limitations in TPD policies. For example, disabilities resulting from professional sports, extreme adventures or certain high-risk occupations may not be covered.

It’s important to carefully review the policy documents and disclosure statements provided by the insurance company to understand the specific limitations associated with a TPD policy you’re considering. If you have any concerns or questions about the policy’s exclusions, talk to the insurer directly or consult a financial adviser.

What medical information do you need to provide to get TPD cover?

To get TPD cover in New Zealand, you’ll typically need to provide health status and medical information to the insurance provider. While specific requirements may vary between insurers, here’s the general medical information that may be requested:

  • Health questionnaire: You’ll probably be asked to complete a detailed health questionnaire. This questionnaire is aimed at gathering information about your medical history, including previous illnesses, surgeries and injuries. It may also ask about any ongoing medical conditions or medications you’re currently taking.
  • Medical records: The insurance company could request access to your medical records, including reports from doctors, specialists and hospitals you’ve visited in the past. This helps them evaluate your health status and any pre-existing conditions.
  • Medical examinations: Depending on the coverage amount you want and the insurer’s requirements, you may be asked to undergo a medical examination conducted by a designated healthcare professional. This type of examination usually involves a general physical assessment, blood tests and other diagnostic tests.
  • Specialist reports: If you’ve been under the care of a specialist for a specific condition, the insurer may request reports from your specialist to assess the impact of your condition on your ability to work.
  • Occupational assessment: Some insurance providers may require an occupational assessment to understand the type of work you do, and its physical and mental demands.

Because the exact disclosure requirements for TPD cover can vary between insurance companies, it’s advisable to reach out to specific insurance providers regarding medical information for TPD cover.

How to get started with TPD cover

As with other types of life insurance, TPD cover can be a useful ‘plan B’ if life serves up an unfortunate surprise. It can easily be combined with life cover, trauma cover or income protection insurance to build a solid wall of financial protection.

If you’re interested in getting TPD cover, your next step could be to research insurers and the policies they offer. It’s also wise to get the help of a financial adviser.

How to get started with income protection insurance

Before you sign up for income protection insurance, it’s advisable to consult with a financial adviser who specialises in life insurance. This way you can compare a range of policies from different insurers. Some will suit your needs better than others. Your adviser can also explain the features and benefits of each option, along with exclusions that might affect you.

DISCLAIMER: The information contained in this article is general in nature. While facts have been checked, the article does not constitute an insurance advice service. It is only intended to provide education about the New Zealand insurances sector. Nothing in this article constitutes a recommendation that any type of insurance cover is suitable for any specific person. We cannot assess anything about your personal circumstances, all of which are unique to you. Before making insurance decisions, we recommend you seek assistance from an insurance adviser or expert.

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