What’s more important: Income Protection Insurance or Total and Permanent Disability (TPD) Insurance?
The most common question I’m asked about personal insurances is “Do I need to have both Income protection insurance and total and permanent disability insurance?”
The answer is “Yes, you should have both insurances in place”. Here are some important reasons why:
- Income Protection Insurance provides an ongoing income if you were unable to work for any period of time, provided you were unable to work for longer than the waiting period (the period of time you must wait before receiving a benefit; shortest waiting period is 30 days). This could be due to an injury, accident or illness. To receive a benefit from income protection you do not need to be totally and permanently disabled and or unable to ever return back to work.
- To receive a benefit from TPD insurance (Total and Permanent Disability Insurance) that is exactly what you need-to be TOTALLY and PERMANENTLY disabled, with the outlook of never returning back to work again.
- TPD insurance is a lump sum benefit which will provide funds to cover debt repayments, lump sums for medical costs (nursing care and hospital stay), children’s education costs and ongoing income.
- Income Protection insurance can offset the benefit amount required for TPD insurance. When calculating the benefit amount required for TPD insurance, ongoing income (e.g your salary or living expenses required) is usually calculated into this benefit. However, if you have income protection insurance in place this offsets the need to account for ongoing income within your TPD benefit amount. If you meet the definition of TPD and receive a benefit from your TPD insurance you will also be able to receive a benefit from your income protection insurance.
- Income protection insurance is tax deductible and can be held inside superannuation. If it is held within superannuation the premium for this cover is tax deductible within your superannuation fund. If your income protection is owned by you personally, it can be claimed as a deduction within your personal tax return. TPD insurance can also be held inside your superannuation fund. The premiums for TPD insurance held inside superannuation is tax deductible to the super fund, however it is important to note that the amount that can be claimed as a deduction within the super fund varies depending on the TPD occupation definition selected. If TPD insurance is held within your personal name, the premium for this cover cannot be claimed as a tax deduction.
Income Protection and TPD do not insure you for the exact same thing. Simply, income protection insurance provides an ongoing income if you were unable to work for a period of time, whereas TPD insurance assists with large lump sum expenses when you are totally and permanently disabled. So what’s more important to have? Or which one should you have over the other? What would you say if I asked you “What’s more important, having my heart or my brain?”.