Life insurance provides a cash lump sum to your family or beneficiaries when you die. This type of cover usually applies immediately following death and the premiums increase as you get older. Total and permanent disability insurance is usually offered as an optional extra on your death cover and provides a lump sum payment if you become permanently disabled.
Bundled or linked policies
If you only have a life insurance policy, this would not pay out if you become disabled because you would still be alive. On the other hand, if you only have a TPD insurance policy, your family would not receive any benefits if you reach retirement age without becoming disabled. This is the reason why many people today opt for life insurance TPD cover – a life insurance policy that includes TPD coverage (linking). Alternatively, you could get both life and TPD insurance covers in two separate policies but from the same insurer for discounted premiums (bundling).
TPD cover via super
If you are a member of a superannuation fund, you may receive automatic cover for term life or TPD insurance up to a certain amount. You may also be allowed to top up your cover at an additional cost. However, because of the group nature of this form of insurance, premiums may be designed to favor older members or those with preexisting medical conditions that would normally be penalized by life insurance companies visit ATO. As such, if you are a young healthy member of such a fund, you may find that purchasing your life insurance TPD cover directly from an insurance company may be more cost effective.
It is also important to find out whether you should expect fluctuations on your premiums in the future. While you may pick a policy because of its cheap premiums, it may ultimately turn out to be an expensive policy if the insurance company penalizes older age groups more than other companies. As such, when comparing the premium prices, you should also take note of any changes that may be applied to the premiums structure over the next couple of years.
Note that when you have a life insurance TPD cover, claiming your TPD benefits would effectively lower your death cover. In some cases, you may even become uninsurable for a life cover. However, if you want your life insurance to be reinstated, you can include a buy-back option that increases the life cover back to the original sum for an extra cost on your premiums. Note that a buy-back option is not offered by all insurance companies, and including this in your policy does not mean that the claimed coverage will be reinstated.
If you have determined that a life insurance TPD cover is appropriate for you as opposed to a standalone TPD insurance policy, you need to find out whether it would be beneficial to get the cover directly from an insurance company or through your superannuation. In addition to the factors mentioned above, it is also important to speak to your financial advisor so you can fully understand what your options are and how you can get the best coverage at an affordable rate.