At a glance:

  • Having both Income Protection and TPD Insurance offers increased financial security and fills potential gaps in coverage.
  • Consider financial dependents, affordability of premiums, risk of incapacity, and preferred benefit type when choosing between Income Protection and TPD Insurance.
  • Consulting an insurance broker and comparing quotes from leading insurers can help make the best decision for your unique situation.



Choosing the right type of insurance to cover for a potential medical emergency or incapacity can be challenging. If you’re under 30, have no dependant family or major obligations and are fit and healthy, the idea of taking out insurance against your future earnings has probably not even crossed your mind.


But income protection insurance might not be the only consideration you should make. The reality is that accidents happen, and people do get unexpectedly ill, even when young and healthy.



Income Protection Insurance: Exploring the Basics


Income Protection Insurance
Income protection insurance. Credit: unsplash


Income protection insurance is a valuable type of policy that provides financial assistance when unexpected illness or injury leads to a loss of income. It typically covers up to 70% of your pre-disablement income, ensuring you can meet your monthly expenses during periods of incapacity.


The benefit payment is paid out regularly until you can return to work, no longer meet the eligibility criteria, or reach the end of the policy term as specified in your Policy Disclosure Statement (PDS). This insurance is particularly beneficial for those who rely on their income, including the self-employed or individuals with limited savings or leave entitlements.



Features and Benefits of Income Protection Insurance


Income protection insurance offers valuable financial assistance in the event of unexpected illness or injury. Some key features and benefits include:


Income Replacement:

Income protection insurance provides a portion of your pre-disablement income, typically up to 70%, to help you cover monthly expenses during incapacity.


Regular Payments:

The benefit is paid out regularly on a monthly basis until you can return to work, no longer meet the eligibility criteria, or reach the end of the policy term as specified in your Policy Disclosure Statement (PDS).


Financial Security:

This type of insurance is particularly beneficial for individuals who rely on their income to support themselves and their loved ones, especially the self-employed or those with limited savings or leave entitlements.



What does Income Protection Insurance Cover


Income protection insurance covers a range of medical conditions, accidents, and injuries that prevent you from working. Commonly covered conditions include:



Such as cancer, heart disease, mental health disorders, and other chronic conditions.



From accidents or physical impairments that hinder your ability to work.


Temporary Disability:

For a specific period when you are unable to perform your job but can eventually return to work.


Total Disability:

In cases where you are unable to work at all due to a permanent disability.



What’s Excluded from Income Protection Insurance


Exclusions vary among insurers, but typical exclusions may include:


Pre-existing conditions:

Medical conditions you had before taking the policy may not be covered.


Intentional self-inflicted injuries:

Injuries resulting from self-harm or suicide attempts.


Engaging in dangerous activities:

Injuries sustained from participating in high-risk activities like extreme sports.


TPD Insurance: Overview


TPD Insurance. Credit: Unsplash


Total and Permanent Disability (TPD) insurance provides a lump-sum benefit if you become totally and permanently disabled and cannot work in your current occupation or any other suitable occupation. This insurance is typically paid if your disability has prevented you from working for the past 3-6 months and results from an accident or illness.


TPD policies offer different cover options, such as “own occupation” and “any occupation,” allowing you to choose the level of protection that best suits your needs. It is essential to understand the specific TPD definition in your Policy Disclosure Statement (PDS) to ensure you are adequately covered.


Click here to see what’s included in Total and Permanent Disability cover.



Features and Benefits of TPD Insurance


Key features and benefits include:


Lump-Sum Payout: TPD insurance provides a one-time lump-sum payment to cover significant expenses, medical costs, debts, and ongoing financial support.

Coverage Options: Different TPD cover options, such as own occupation, any occupation, home duties, or modified, allow you to choose the most suitable definition for your situation.



What does TPD Insurance Cover?


TPD insurance cover total and permanent disabilities resulting from various causes, including:



Injuries resulting from accidents or trauma.



Such as stroke, severe arthritis, or neurological disorders that lead to permanent disability.


Permanent Impairment:

Injuries that permanently impair physical or mental capabilities.


Coverage will depend on the specific TPD definition chosen, such as own occupation, any occupation, or other options.



What’s Excluded from TPD Insurance?


Exclusions vary among policies, but common exclusions may involve:


Pre-existing conditions:

Disabilities that existed before purchasing the policy may not be covered.


Intentional acts:

Disabilities resulting from self-inflicted harm or criminal activities.


Temporary Disabilities:

Conditions that are not permanent and expected to improve over time.


Please note that policy terms and exclusions may vary among insurers, so it’s crucial to review the PDS and seek professional advice before selecting the right insurance coverage for your needs.



Comparing Income Protection and TPD Insurance


Both Income Protection and Total and Permanent Disablement (TPD) Insurance are important financial protection tools. Understanding their differences can help individuals make informed decisions based on their unique needs and circumstances.


Key Differences


The table presents the key differences between Income Protection and TPD insurance, focusing on various aspects such as definition, cost, waiting period, payout, benefit period, premiums, taxation, advantages, cover options, and types, as well as considering their relevance to self-employment.



Income Protection

Total and Permanent Disablement (TPD) Insurance


Provides monthly benefits to replace lost income due to illness or injury.          

Pays a lump sum if you become permanently disabled and unable to work.


Monthly benefits to replace lost income due to illness or injury.

Lump sum benefit paid upon permanent disability.

Waiting Period

Can range from 14 days to several months.

Usually 3 to 6 months.

Benefit Period

Offers benefits for a predetermined period (e.g., 2, 5 years, or up to age 65).

Lump sum benefit paid upon permanent disability.


Premiums are based on various factors, such as age, occupation, and coverage level.

Typically cheaper than Income Protection Insurance.


Protects your ability to earn income during temporary or permanent disability.

To fund adjustments you need to make to your lifestyle. Settle any debts, including medical bills. You can enhance your policy by adding optional extras.


Premiums are generally tax-deductible, and benefits are usually taxed as regular income.

Premiums are not tax-deductible. Lump sum benefit is generally tax-free.

Claim Process

Monthly benefits are claimed based on inability to work due to illness or injury.

Claim process involves proving permanent disability as per policy terms.


Suitable for self-employed individuals who want to protect their income in case of illness or injury.

May be suitable for self-employed individuals, depending on the policy and coverage options available.

Income protection types/ TPD Cover option

– Agreed value: Monthly benefit based on your income prior to application.

– Own occupation: Payment made when permanently and totally disabled in your specific occupation.

– Indemnity value: Proof of income requested and confirmed at claim time.

– Any occupation: Cover when permanently incapable of working in any occupation suited to you.

– Guaranteed Agreed value: Financial assessment takes place before policy is accepted, and benefit payments may be guaranteed without needing financial proof.

– Home duties: Covers homemaker or stay-at-home parent when totally and permanently disabled in domestic tasks.


– Modified: Pays a benefit if you are no longer capable of performing at least 2 of the 5 daily living activities.



Choosing the Right One Based on Personal Circumstances


Choosing the right insurance between Income Protection and TPD depends on individual circumstances. For employed individuals, Income Protection offers ongoing income replacement during disability, while TPD provides a lump sum payout for total and permanent disability.

Self-employed individuals should consider both options to safeguard their income and business continuity. It’s essential to assess personal needs, financial obligations and consult with insurance experts to make informed decisions.



How to Choose Between Income Protection and TPD Insurance?


When deciding between Income Protection and Total and Permanent Disablement (TPD) Insurance, consider the following practical advice based on various aspects:


Financial Goals and Obligations


Assess your short-term and long-term financial goals, including outstanding debts, mortgage, education expenses, and retirement planning. For example, if you have significant debts, TPD Insurance can help clear them in case of permanent disability.


Current Health Status


Evaluate your current health and any pre-existing medical conditions. If you have a higher risk of suffering a critical illness or disability, Income Protection Insurance can provide ongoing support during periods of temporary inability to work.


Occupation and Job Security


Consider the nature of your occupation and job stability. Certain professions may have higher risks of disability, making TPD Insurance a valuable option. On the other hand, if your occupation involves regular sick leave entitlements, Income Protection may complement existing benefits.


Family and Dependents


Take into account your family’s financial dependence on your income. For instance, if you have young children or a non-working spouse, Income Protection can ensure their financial well-being in case of illness or injury.


Waiting and Benefit Periods


Compare the waiting period (time before the policy pays out) and benefit period (duration of coverage) for both policies. If you have substantial savings to cover short waiting periods, income protection with a shorter benefit period might be suitable.


Premium Affordability


Analyse the premiums for both types of insurance and ensure they fit within your budget. Keep in mind that income protection premiums are tax-deductible, which can make them more affordable.


Comprehensive Coverage


Consider combining both policies for comprehensive coverage. For example, you can opt for TPD Insurance to cover large debts and income protection to maintain regular cash flow during temporary disabilities.


Future Life Plans


Contemplate your future life plans, such as career advancements, starting a business, or significant lifestyle changes. Insurance needs may vary based on your life stage and goals.


Policy Terms and Conditions


Thoroughly review the terms and conditions of each policy. Pay attention to any exclusions, waiting periods, and claim processes to ensure you understand the coverage fully.


Professional Advice


Seek advice from insurance professionals or financial advisors who can tailor insurance solutions to your specific needs and help you make an informed decision.


Remember, each individual’s circumstances are unique, so carefully analyse your financial situation and risk tolerance before selecting the insurance option that offers the most comprehensive protection for your needs.



Implications for Self-Employed Individuals


For self-employed individuals, choosing suitable insurance options and navigating return-to-work scenarios can have specific implications. Here are some important considerations:


Income Protection for Business Continuity: Income Protection Insurance is crucial for self-employed individuals as they don’t have access to employer-sponsored benefits like sick leave. It ensures a steady income stream during periods of illness or injury, allowing the business to continue running smoothly.


Total and Permanent Disablement (TPD) for Long-Term Disabilities: Self-employed individuals should consider TPD Insurance to protect against long-term disabilities that could hinder their ability to work and manage the business. TPD provides a lump sum payment that can cover medical expenses and business-related debts.


Customised Coverage: Self-employed individuals often have unique business structures and income streams. They should work with insurance providers who understand their specific needs and tailor policies to suit their business and personal circumstances.


Coverage for Business Overheads: Consider Business Expense Insurance to cover essential business expenses, such as rent, utilities, and employee salaries, in case of a temporary disability that affects business operations.


Key Person Insurance: If the success of the business heavily relies on the owner’s skills and expertise, Key Person Insurance can provide financial protection in the event of the owner’s disability or death.


Return-to-Work Planning: Self-employed individuals need a comprehensive return-to-work plan that addresses both personal recovery and business reintegration. This plan should account for potential modifications to work tasks and schedules.


Partial Disability Coverage: Self-employed individuals may benefit from policies that offer partial disability coverage. This allows them to receive benefits if they can work in a reduced capacity due to their disability.


Proof of Income Documentation: Unlike employees who receive regular payslips, self-employed individuals must maintain clear and organised financial records to substantiate their income when making a claim. Ensure all relevant documentation is readily available.


Coordination with Business Insurance: Self-employed individuals should align their personal insurance choices with existing business insurance policies to ensure comprehensive coverage and avoid overlaps or gaps.


Seek Professional Advice: Consulting with insurance experts and financial advisors who specialise in self-employed individuals can provide valuable insights and help in making informed decisions about insurance options.



Double Coverage: Can you have both TPD and Income Protection


Having both TPD (Total and Permanent Disability) and Income Protection insurance policies can provide comprehensive coverage and financial security during times of uncertainty. Each policy serves a distinct purpose – TPD offers a lump sum benefit for permanent disability, while Income Protection provides ongoing income replacement during a temporary disability. Combining both policies can offer additional advantages, ensuring a safety net for various scenarios.



The Advantages of Having Both Policies


By having both TPD and Income Protection insurance, individuals can enjoy the benefits of each policy type. TPD covers long-term disabilities, such as a severe accident or illness resulting in permanent disability. The lump sum payout can help clear debts, modify the home, or fund necessary lifestyle adjustments.

On the other hand, Income Protection Insurance covers temporary disabilities, providing regular payments to maintain a lifestyle during periods of inability to work. This ensures financial stability and allows individuals to meet day-to-day expenses.



Understanding Concurrent Claims


Concurrent claims refer to a situation where an individual submits a claim to receive benefits from multiple insurance policies simultaneously. In the context of Australian insurance, concurrent causation involves events that cause a loss occurring at the same time or one after the other, leading to complexities in determining coverage and liability for resulting damages.


For instance, if a property in Australia is damaged by both wind and flood during a storm, the policyholder may seek benefits from both the wind damage coverage and the flood damage coverage. However, insurance policies in Australia may include anti-concurrent causation provisions to limit coverage in certain scenarios.


The concept of concurrent causation has legal precedents in Australia, which may differ from other countries’ court decisions. Insurance providers have responded to these rulings by revising policy wordings and incorporating anti-concurrent causation provisions. These provisions exclude damages from listed perils, even if a second, covered peril also contributed to the damages. The exclusions apply regardless of whether the perils occurred simultaneously or sequentially.


It is essential for individuals making concurrent claims to understand their specific policy wordings, exclusions, and how local courts interpret concurrent causation. The impact of concurrent causation can vary depending on the type of policy, the nature of the loss, and the jurisdiction in which the claim is made. As such, it is advisable to seek professional advice and carefully review the policy terms and conditions when navigating concurrent claims in the Australian insurance landscape.



Some Common Concerns


Is TPD Insurance a substitute for Income Protection?


No, TPD (Total and Permanent Disability) insurance is not a substitute for income protection. While both types of insurance provide financial support in case of disability, they serve different purposes.

TPD insurance offers a lump sum payment if you become permanently disabled and are unable to work again. On the other hand, income protection insurance provides regular payments to replace a portion of your income if you are temporarily unable to work due to illness or injury. Having both policies can offer comprehensive coverage to protect your financial well-being.


Are these Insurances a wise investment for individuals?


The decision to invest in TPD insurance and income protection depends on individual circumstances and needs. For those who rely on their income to support themselves and their loved ones, income protection can be a wise investment to ensure financial stability during times of incapacity.

TPD insurance, on the other hand, can be valuable for individuals seeking financial protection in the event of a permanent disability. Consider factors such as age, health status, occupation, and financial obligations to determine if these insurances align with your long-term financial goals.


Do I need both income protection and TPD?


Having both income protection and TPD insurance can provide comprehensive coverage for various scenarios. Income protection offers ongoing income replacement during periods of disability, while TPD insurance provides a lump sum payment for permanent disabilities.

Combining both policies can fill potential gaps in coverage, offering financial security during temporary and permanent incapacities. Assess your individual needs, budget, and risk tolerance to decide if having both policies is suitable for you.


Can I claim TPD and income protection at the same time?


Yes, in most cases, you can claim both TPD insurance and income protection benefits simultaneously, subject to the policy definitions and conditions of each insurance provider. If an illness or injury prevents you from working, and you meet the policy definitions for both TPD and income protection, you can generally receive benefits from both policies.

However, some insurers may have specific guidelines regarding concurrent claims, so it’s essential to review the policy terms and consult with your insurance provider.


Can I claim tax on TPD and income protection?


The tax treatment of TPD insurance and income protection benefits can vary depending on your individual circumstances and the policy structure. Generally, TPD insurance lump sum payments are tax-free, while income protection benefits are usually taxable as regular income.

However, tax regulations can change, and it’s recommended to consult a tax professional or financial advisor to understand the tax implications of these insurances based on your specific situation.


In conclusion, both TPD insurance and income protection play crucial roles in safeguarding your financial well-being during unexpected life events. TPD insurance offers a lump sum payout in case of permanent disability, providing a financial safety net to cover significant expenses. On the other hand, income protection ensures continuous income replacement during temporary incapacity, helping you maintain your lifestyle and meet financial commitments.


Choosing between TPD insurance and income protection depends on individual circumstances, including your health status, financial obligations, and family needs. Some individuals may find value in having both policies to achieve comprehensive coverage and financial security.


Before making any decisions, it’s essential to thoroughly review policy terms, understand the coverage, and assess your unique requirements. Consider seeking professional advice from insurance brokers or financial advisors to make informed choices.


Remember, life is full of uncertainties, and having adequate insurance coverage can offer peace of mind and protect you and your loved ones from the financial burdens that may arise in challenging times. Whether you opt for TPD insurance, income protection, or both, having the right insurance protection is a crucial aspect of your overall financial planning.

Mike Wallis

Mike has over 25 years experience, having spent his first seven years working as a Broker at Jardine Lloyd Thomson in Melbourne and in 2002 was transferred to JLT’s Accident and Health Department in London. For four years (2002 – 2005) Mike was a specialist A&H Lloyd’s Broker and during this time developed excellent relationships with the Lloyd’s A&H underwriting fraternity. In 2006 he returned to Australia in a senior broking position with overall responsibility for Placement Strategy, including the implementation of underwriting facilities and the various authorities granted by Lloyd’s. Mike was the underwriter at two specialist Underwriting Agencies prior to founding Aspect Underwriting in 2016.