Context & Problem

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Around 1 in 5 Australians experience a disability before retirement age (ABS, 2023). Yet many have no plan for what would happen if they could never work again.

TPD insurance is often bundled inside super without people realising it — but default cover may not be enough, and some policies are harder to claim on than others.

With increasing cost-of-living pressures and tighter insurance definitions since 2019 (driven by APRA reforms), it’s more important than ever to understand what you’re covered for — and whether it still suits your situation.

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1. What Does TPD Insurance Cover?

TPD pays a lump sum (e.g. $100,000 to $1 million+) if you’re permanently disabled and meet the policy’s definition. It’s typically used to:

• Replace lost future income
• Pay off a mortgage or other debts
• Fund long-term care, rehab or retraining
• Support dependants

The definition of “total and permanent disability” is key.

2. Types of TPD Definitions

• Own occupation: You can’t ever return to your specific job.
• Any occupation: You can’t ever return to any job suited to your education or experience.
• Activities of daily living (ADL): Applies if you can’t perform basic functions like feeding, bathing or dressing yourself. Used in some super-based policies and harder to claim.

Important: Most superannuation-held TPD cover uses the “any occupation” or ADL definition, which is stricter.

3. Inside Super vs Outside Super

Tip: TPD inside super may be cheaper, but outside-super policies offer more flexibility and faster access.

4. Who Should Consider It?

TPD insurance may be particularly useful if:

• You have dependants or a mortgage
• You work in a physical or high-risk job
• You’re self-employed or lack other disability cover
• You don’t have enough savings or super to support a long-term disability

5. How Much Cover Do You Need?

A common rule of thumb is enough to:

• Pay off your home loan
• Cover ongoing living costs for 10–20 years
• Fund medical or rehab needs

Example:
If you earn $80,000 p.a. and want 10 years of income replacement = $800,000 cover
Add $300,000 to clear a mortgage = $1.1 million total

Your personal needs may vary — this is just a guide.

6. TPD vs Life Insurance

• TPD pays if you live but can’t work
• Life cover pays if you die
• You can hold both — and often bundle them together to reduce premiums

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Isn’t TPD already covered by super?

• Yes, but coverage varies. Many Australians have default TPD insurance through their super fund, but:
• The amount may be low (often under $100,000)
• The definition used (e.g. “any occupation” or ADL) may be harder to claim on It’s worth checking your fund’s Product Disclosure Statement (PDS) to see what’s actually covered.

What’s the difference between TPD and income protection?

• TPD is a one-off lump sum paid if you’re permanently unable to work due to illness or injury
• Income protection pays ongoing monthly payments (up to 70% of your income) while you recover from a temporary or long-term condition
  They serve different purposes—and many people choose to hold both.

Is the TPD payout taxed?

• Inside super: It may be taxed (up to 22%) if you’re under preservation age and haven’t met a “condition of release”
• Outside super: It’s generally tax-free
  Tax treatment depends on your age, how the policy is held, and whether you meet release conditions.

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Can I have both inside and outside cover?

• Yes! Many people do this to balance cost and flexibility. Just be mindful not to double up unnecessarily—compare definitions, premiums, and access rules.

Isn’t it rare to claim on TPD?

• TPD claims aren’t common, but they’re serious when they happen. According to APRA’s 2023 report, TPD is the second-largest claim type in life insurance, with payouts often exceeding $200,000.

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