I have TPD within my super fund. I would now like to buy Income Protection (IP) within the same super fund. There is an option to buy IP up to 65 years of age. Just wonder if I should cancel the TPD, as once you have IP up to 65 years of age, you would not need the TPD. Thank you for your advice.
Income Protection (IP) Insurance up to 65 Years of Age and Total Permanent Disablement (TPD)
helloall on 29/10/2020 - 10:49
Comments
Death and TPD are typically lump sum payments where as IP are monthly payments to replace your lost income in the event of the insured being unable to work due to certain circumstances.
They do not overlap significantly.
IP is useful where one breaks one's leg and is not able to work one's marine engineering job for 6 months. TPD does not cover that.
Thank you for your explanation. As the IP is for up to 65 years of age, would the TPD apply? Two payouts is not necessary in my case, so I was wondering if I could save money by dropping the TPD once I have IP up to 65 years of age.
If you're qualified for IP payments until age 65, you are more than likely to be qualified for TPD payment as well. They can overlap. TPD is paid as lump sum and can be useful for medical costs, house reno (i.e. installing wheelchair ramp) and IP will give you monthly benefit for your living expenses.
TPD can also be useful to setup your ongoing life. If you are now in a wheelchair, that lump sum can help you make your home more accessible etc.
I have an IP policy with a separate insurer to my super fund as it is a much better deal. If you have the time/effort to look at alternative IP insurers, I would highly recommend it.
Agree with this, don't just lump it into super without looknig around first. IP insurance is tax deductable and I found much better coverage outside of super when I looked. Your experience will vary massively with age/occupation/pre-existing health conditions etc as well (I have heard that super fund cover is often better if you have any pre-existing health conditions, unsure if this is ture or not).
I was mid-late 20s when I first got IP insurance, and the cost increased significantly over the next decade and the cover did not increase in line with income. I was luckily able to cancel my old policy recently as my employer provided both life and IP insurance.
Just remember to include your super in your IP. That is, while you get paid, IP, the insurer will continue to pay into your super at the gov mandated amount. When your IP stops at 65, your super remains healthy…
Insurance is complex, speak with an advisor… I always maintain that people who complain about insurers, didn’t understand their policies in the first place.
Speak to a financial advisor. The below comments are general and not tailored to your specific circumstances.
Income Protection insurance is best taken up in your own name [as in you pay the premiums yourself, it's not in the super fund].
Why? Well, uh, let's be [somewhat] brief - there's 2 main types of IP - "chosen profession" and "any profession". "Chosen profession" means can't work your 'normal' job. "Any" is well, any job.
If you're an excel spreadsheet jockey and bad Subway meatball sub gives you a case of permanent spreadsheet dyslexia, you can cash your 'chosen profession' IP right away because you can't do spreadsheets no mo'. You'll get 75% of your usual wage until you hit 65.
If you have "any profession" IP and you no longer excel at Excel, your insurer will tell you to apply for a job pushing trolleys at Coles. Or carrying bricks on a building site. Or shudder working at Subway, making their Sub-standard sandwiches. You'll only cash in a 'any job' IP policy if there are literally no jobs at all you can work.
So, let's make sure it's 'chosen' IP.
If you're paying your own after tax money for IP, you get a deduction in your tax return. Always handy, right?
Also, unless you're trying to cash in your IP because something really terrible happened to you (in an iron lung, on a wheelchair, helper monkey is the one from movie "Outbreak"), when you try and cash in your chosen IP where the super fund owns the policy, you won't be able to get the money out.
Rewind to the spreadsheet Subway nonsense above. If you have a 'chosen' IP policy that your fund owns, your first phone call to the insurers results in a 'damn son, sorry to hear it, we'll cash out your policy and start sending cheques, get some rest'. Then you phone up your super fund and tell them they're about to start receiving some massive cheques until you hit the age of 65 and you'd like them forwarded to you at the following address but but BUT
They interrupt you and say "The only way you get money out of a super fund is if you're 65 or if you're, you know, in a wheel chair and you're totally screwed and there's doctor's notes on how ruined your entire life is". 30 year old office workers who can't work in an office environment any more need to wait until they're 65 to pull out that giant pot of gold that keeps getting bigger and bigger.
So yeah, that's that.
If/when you speak to a financial advisor [super fund might be able to hook you up, especially if they're selling insurance to you and want a sale], one thing to float by them is buying not one by two income protection insurance policies. "What what, Crow? The (profanity)? The.. are you working for them? Are you on a commish?"
No, buddy. If you are able to live off your/family's savings for roughly two years before making an IP claim, the policy will be a lot cheaper. Basically you buy a policy in your own name, but they won't start sending out cheques until two years after you make a claim for eating a bad Subway sub. So, as a 30 year old you eat the sub, then make a claim, then from age 32 to 65 the cheques get mailed to you.
At the same time, you buy a IP policy in your super fund but that policy will only cover you for 2 years. It's also cheap, because it only runs for 2 years.
Why do that?
Then, if Wile E Coyote is standing next to you when he's putting on his rocket skates and you end up in the wheelchair with the doctor's note and your life is ruined, you cash in both policies on the spot. Super fund Insurance pays you for 2 years and stops, and when it does, the personal insurance pays you until you're 65.
Bam, you have cheap insurance that will cover you if something terrible happens or if something somewhat benign happens [and you can live off savings/cheaply for 2 years].
OzBargain not a good place to come to for advice about TPD and IP insurance.
If you want to find out more about them and get a reasonable background knowledge, start here and do some further reading