Understand what you are buying: Total & Permanent Disability Insurance

There are two main types of disability insurance, and they get mixed up and confuse many people.

The first is "income protection insurance", sometimes called "disability cover". It basically tries to replace part of your income if you are unable to work because of sickness or accident for a period of time.

Total & Permanent Disability (TPD), as the name suggests, is quite a different thing. This is the second main type of disability insurance though. At the risk of stating the obvious, the difference with this one is you have to be permanently disabled....the "totally" disabled part depends on what type of policy definitions you have. The definitions of what is "totally" disabled can vary enormously from policy to policy – even within the same insurance company.

TPD covers you if you become totally and permanently disabled as a result of an accident or illness and are never likely to return to work again in the opinion of medical specialists.

It will not cover any temporary disability or disablement.

TPD cover can be bought alongside (or inside) a Life Insurance policy or can be bought by itself. Claims will generally be paid as a lump sum payment.

Usually clients have a choice of buying a policy that covers them for their "own occupation" or for "any occupation". "Own occupation" policies are more expensive as the odds of being able to carry on in the same occupation are not as good as the chances of being able to partially recover and do something completely different for the rest of your career.

Most people will be better off with "own occupation", although it is not always available for some occupations.

Some companies offer a third definition aimed at people who do not work, which is basically a 'home maker' definition. This recognises the very real financial benefits that a "stay at home" parent or caregiver provides to the entire family unit, and more importantly – what it might cost to replace them if they need long term care.

As a basic rule, consider getting a TPD policy added into your life insurance policy to cover mortgages and debts, anticipated medical costs in the event of a disaster, rehabilitation costs and any replacement for lost future income. If in doubt about how much that adds up to, then seek professional advice.