When considering Total and Permanent Disability (TPD) insurance, there are essentially three different definitions to choose from. These definitions vary considerably and have different cost and potential claim considerations. So let’s take a closer look at each of them.

TPD Definition 1 – Own Occupation

This is the most comprehensive TPD definition available. The ‘Own Occupation’ definition allows you to qualify for a benefit payment if you are permanently unable to perform the duties of your own occupation. It is not necessary to be unable to perform the duties of any other occupation. This definition provides the greatest certainty in the event of a claim, but also comes at a higher cost than the other definitions.

TPD Definition 2 – Any Occupation

This definition means you can qualify for a benefit payment if you are permanently unable to perform the duties of your own occupation, as well as any occupation that is reasonably suited by way of education, training and experience. There is less certainty with this definition, compared to the ‘Own Occupation’ definition. Legal precedents show that the insurer can look at a wide range of potential occupations when deciding whether you’re likely to ever work again, some of which may bear little resemblance to your previous occupation.

TPD Definition 3 – Activities of Daily Living (ADL)

The ‘Activities of Daily Living’ (ADL) definition is not based on an occupation. Instead, it’s based on your ability to look after yourself and have a life of independent existence. Payment is made on the basis that you are unable to perform at least two of the six ‘activities of daily living’, such as feeding yourself, bathing yourself, dressing yourself, etc. Because this definition isn’t based on performing the duties of an occupation, it provides the least certainty in the event of a claim, but it comes at a considerably lower cost.

Which definition is right for you?

The answer to this depends on a number of factors. The purpose of TPD is essentially to fill any funding shortfall gaps that exist after Income Protection insurance is put in place. These gaps might be in place to fund debt, an income shortfall or ongoing disability care. It’s important to consider the purpose of the insurance, in order to determine the most appropriate definition for you.

For example, if the sole purpose of the TPD insurance is to fund disability care costs, why pay significantly higher insurance premiums for an ‘Own Occupation’ definition, when it’s highly likely that an ‘Any Occupation’ definition may be perfectly acceptable, given that you would only need the insurance benefit in the event of a severe disability.

Focussing on the purpose of the insurance allows us to match the appropriate TPD definition to the need, which in turn often allows us to achieve cost efficiencies. If you would like to find out more please call us on 1300 ELSTON or email info@elston.com.au and someone will be in touch.

Are there any structural limitations?

It’s also important to consider the structural limitations of the various TPD definitions. If you’d like to hold TPD insurance under your superannuation, then this will restrict the TPD definitions available to you. Currently, only ‘Any Occupation’ and ‘Activities of Daily Living’ TPD definitions are available within superannuation, as these are the only definitions that meet the superannuation ‘condition of release’. ‘Own Occupation’ is not permitted inside superannuation, as it risks having a benefit payment locked away in your super fund that you won’t be able to access.

Would you consider a different occupation?

The other factor to consider is your actual occupation and situation, and whether you would be happy to work in a different occupation, should you no longer be able to work in your own occupation.

For example, if a surgeon were to lose a hand or develop some motor function problem, it’s highly likely that he/she would be unable to work as a surgeon, but they may well be able to perform the duties of a GP or a lecturer. If the surgeon doesn’t want to be forced to work in a different occupation, then only the ‘Own Occupation’ definition provides the certainty they need.

How do you choose the right definition for you?

Selecting an appropriate TPD definition can be a bit of a minefield, so it’s vital that you seek advice from an insurance specialist who can consider the different factors mentioned above, to achieve the right combination of certainty and cost for your TPD insurance requirements.

If you’d like to know more about which TPD definition is right for you and how Elston can assist please speak with your Elston adviser.