TPD claim definitions explored

According to a report conducted by the Institute of Actuaries Australia*, in your working life you have a 1 in 3 chance of being disabled for more than three months; this statistic is further compacted when combined with a research study*^ that found if a person is off work for:

  • 20 days, the chance of ever getting back to work is 70%.
  • 45 days, the chance of ever getting back to work is 50%.
  • 70 days, the chance of ever getting back to work is 35%.

For many of us Total and Permanent Disablement (TPD) cover forms a component of our overall personal insurance plan; in the event of a disabling sickness or injury it has been designed to help to take the financial stress off the table in a time when our world has been turned upside-down. We explore the types of claim definitions available and their respective differences.

Claims definitions

In terms of claims definitions there are many different types available with some restrictions placed upon eligibility based on your age, occupation, and medical history. There are four main types of TPD claims definitions that are offered by insurers – Own occupation, Any occupation, Homemaker and General/All duties.

Each TPD definition offers cover for a different purpose and has a different set of criteria that will need to be satisfied at the time of claim to be eligible for a TPD lump-sum payment. Consequently, being aware of and understanding the implications of each is important when working with a financial adviser to put together an insurance plan that fits your financial situation.

So, let’s explore the difference between the main TPD claims definitions.

Below is a general guide as definitions may vary between insurers. To be eligible to claim on a TPD policy which has:

  • An Own occupation claim definition#; you will need be assessed by the insurer, after consideration of medical evidence, the period of disablement (usually at least three months) and ongoing supervision by a Medical Practitioner (and have undergone all reasonable and usual treatment including rehabilitation), as being incapacitated to such an extent, solely because of a sickness or injury, as to render you unlikely ever to be able to work in your own occupation.
     
  • An Any occupation claim definition; you will need to be assessed by the insurer, after consideration of medical evidence, the period of disablement (usually at least three months) and ongoing supervision by a Medical Practitioner (and have undergone all reasonable and usual treatment including rehabilitation#^), as being incapacitated to such an extent, solely because of a sickness or injury, as to render you unlikely ever to be able to work in any occupation for which you are reasonably suited by training, education or experience,
    • That would pay remuneration at a rate greater than 25% of your earnings during your last 12 months of work, or
    • Where you have suffered at least 25% impairment of whole person function.
  • A Homemaker claim definition; you will need to be assessed by the insurer, after consideration of medical evidence, the period of disablement (usually at least three months) and ongoing supervision by a Medical Practitioner (and have undergone all reasonable and usual treatment including rehabilitation), as being incapacitated to such an extent, solely because of a sickness or injury, as to deem you unable to ever carry out all normal household duties namely, cooking and preparing meals, cleaning the house, washing and drying clothes, shopping for groceries and looking after children.
     
  • A General/All duties claim definition; you will need to be assessed by the insurer, after consideration of medical evidence, the period of disablement (usually at least three to six months) and ongoing supervision by a Medical Practitioner (and have undergone all reasonable and usual treatment including rehabilitation), having suffered one of the following as a result of sickness or injury:
    • The total and permanent loss of use of two limbs; loss of use of one limb and loss of sight in one eye; or loss of sight; or,
    • A loss of independent existence:
      • Permanent and irreversible inability to perform, without assistance, any two of the activities of daily living namely bathing, dressing, toileting, mobility, continence and feeding; or
      • Significant cognitive impairment namely a deterioration or loss of intellectual capacity that results in a requirement for a full-time permanent caregiver.

        Although, not the easiest to digest, it is important to understand that growing your wealth also means protecting it with good quality personal insurance that is tailored to suit your financial situation. So, take some time to consider not just what you are invested in, but also how you are insured.

*^The Institute of Actuaries of Australia (2000). Interim Report of the Disability Committee. Retrieved from: https://www.actuaries.asn.au/Library/Draft%20Interim%20Report%20of%20the%20Disability%20Committee%201995-1998%20-November%202000.pdf

*^Actuaries Institute, Actuaries Summit. Super, Life and General meet at the Crossroads. Retrieved from: http://www.actuaries.asn.au/Library/Events/SUM/2015/4cLeeEtAlSuperPaper.pdf

#As of the 1st of July 2014, you are no longer able to establish TPD insurance policies with an Own occupation claim definition inside superannuation; however, grandfathering arrangements exist for relevant insurance policies that were established prior to this date.

#^Some insurers’ may now refer to the scope of rehabilitation also covering training, retraining or re-skilling to help you return to work.