If you could not work anymore, how much money would you need to live comfortably until you could access your superannuation? In the worst-case scenario, what would your family need to pay their expenses if you had a terminal illness? It is challenging to know the level of cover you need; however, the following might make it a little easier to calculate.
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. These funds provide financial protection when you need it most. Your TPD benefit covers your living expenses and allows you to maintain your usual lifestyle.
Calculating the amount of money 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 your:
- Power bills
- Food
- Car repayments
- Fuel and other vehicle costs
- Medical care & rehabilitation expenses
- 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 acquired your disability 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.
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, minus these 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. If you are staying at home looking after your dependents, add in the cost if you had to pay someone to fulfil your role. Also, add in funeral expenses 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.