If you could not work anymore, how much money would you need to live comfortably until you could access your superannuation? Do I even need TPD insurance? You should know how much insurance cover you need to make an informed decision about protecting your financial future.
In the worst-case scenario, what would your family need to pay their expenses if you had a terminal illness? Knowing the level of cover you need can be challenging; however, the following might make it a little easier to calculate.
TPD Insurance Lump Sum Payout
When you have a permanent disability, either physically or psychologically, and you can no longer work, Total and Permanent Disability (TPD) insurance provides a lump sum payout that helps replace lost income.
This lump sum provides financial protection when needed because a TPD benefit covers living and medical costs, allowing you to support your family’s ongoing living expenses.
About Death and TPD Cover?
In Australia, TPD cover is often combined with death cover. For example, if you make a TPD claim and receive a $150,000 lump sum payment, that figure would be removed from your death benefit.
How to Calculate How Much Insurance Cover You Need
Calculating how much cover you need begins by subtracting your long-term financial obligations from your current assets.
Your everyday living expenses
When you can’t work anymore, your daily living expenses continue and include things like:
- Power bills
- Food
- Car repayments
- Fuel and other vehicle costs
- Medical expenses and rehabilitation costs
- Insurance premiums
- Contributing funds to your superannuation
Your current debts
Consider other recurring costs, such as:
- Home loan repayments
- Credit card repayments
- Personal loans
- Student loans
Your income requirements
The amount of money you need to support yourself and your family to maintain your current lifestyle both now and in the future for necessities and the extras that make your life worth living.
Other income sources
Depending on how you became permanently disabled and your level of disability, you could have other sources of income, for example:
- Make a common law claim (sue for damages)
- Make a WorkCover claim
- Your private health insurance may pay your medical bills
- You might have a trauma insurance claim
- You might have an income protection claim
- You might have multiple TPD claims.
It is important to be aware of comprehensive protection options provided by insurance cover (such as TPD insurance) to provide for your financial responsibilities if you become totally and permanently disabled.
Knowing your legal entitlements is complex and best investigated by a lawyer or solicitor with substantial expertise in insurance litigation. Aussie Injury Lawyers will provide this service to you free of charge. Know what you can claim and how much your claims are worth.
Calculating Your TPD Insurance Amount
In Australia, the average salary for males is approximately $2,000 a week and $1,800 a week for females. Once you know your expenses, subtract them from your current assets and regular income to see your surplus. Then estimate the year in which you would become TPD.
The gap between this time and your retirement age is the number of years for which you require additional income to maintain your lifestyle. Generally, you should use ten years as a foundation for your calculations.
Cost of Financial Dependents
The finances you require to support your children’s (or other dependents’) schooling and care depend heavily on your personal circumstances. If you are staying at home and looking after your dependents, add the cost of paying someone to fulfil your role. Also, add in funeral costs if your condition is terminal.
How much TPD cover do I need?
The difference between the assets and finances you have right now and what you will need to survive is the amount you need in Total and Permanent Disability insurance. How much money you need in TPD will depend on these calculations and the age at which you acquire your disability.
In Australia, most people qualify to claim their TPD benefit later in life. Being incapacitated later in life reduces your future costs because you need less money to survive until retirement age. At this time, you can withdraw funds from your superannuation account. If your medical condition is terminal, you can access your super funds tax-free anytime within your 24-month certification period.
Permanent Disability Insurance FAQs
Fixed-cover TPD insurance means you have a fixed level of financial protection for the life of the policy that won’t change as you age. However, the premiums can vary over time.
In Australia, a death and TPD claim are two different types of claims. Most insurance policies offer either TPD or death cover. In some cases, you can buy one insurance policy that combines death and TPD cover but pays a separate benefit for each.
When you are unable to work anymore, a TPD payout relieves financial pressure. The funds can be used to:
- Pay off debts
- Fund medical expenses
- Fund permanent lifestyle adjustments
- Pay for funeral expenses
When calculating how much TPD is enough, multiply your family income by four. This number shows how much TPD coverage you should have. Keep in mind that your income will change over time, so the value of your TPD insurance should also change.