Total Permanent Disability insurance, commonly called TPD, pays a lump sum if you become so disabled that you can never work again. This is different from income protection, which covers temporary disability. TPD addresses the catastrophic scenario of permanent inability to earn income.
TPD cover provides financial security when a serious disability ends your working life.
TPD and ACC in New Zealand
ACC covers accidents but not illness-related disability. If you become permanently disabled due to an accident, ACC provides ongoing support. However, if a stroke, progressive illness, or degenerative condition leaves you permanently unable to work, ACC provides nothing. TPD insurance fills this gap by providing a lump sum for permanent disability from any cause-accident or illness. Given ACC's accident coverage, TPD is particularly valuable for protecting against illness-related permanent disability.
What TPD Insurance Covers
TPD insurance pays a single lump sum if you become totally and permanently disabled. The definition of disability varies between policies, and understanding these definitions is critical to choosing the right cover.
The payout is tax-free and yours to use however you choose: paying off debt, funding ongoing care, or investing for future income.
Own Occupation vs Any Occupation: Which Is Better?
TPD policies use different definitions of disability. Understanding these definitions is one of the most important decisions when choosing TPD cover.
Own occupation TPD pays if you cannot work in your specific occupation. This is the more favourable definition for policyholders. If you are a surgeon who loses fine motor control, own occupation would pay even if you could theoretically work as a medical consultant or in administration.
Any occupation TPD requires that you cannot work in any occupation suited to your education, training, or experience. This is a stricter definition that makes claims harder. The same surgeon might not qualify because the insurer could argue they could work in another medical role.
Which should you choose? Own occupation definitions are strongly recommended if available and affordable. They cost more, but the difference in what triggers a payout is substantial. With any occupation cover, you might find yourself technically able to do some lower-paid work and therefore unable to claim, even though your career and earning capacity are devastated. Many New Zealand advisers recommend own occupation as the default choice where budget allows.
Waiting Period For TPD
TPD policies typically require you to be disabled for a period, often six months, before you can claim. This ensures the disability is genuinely permanent rather than recoverable.
During this waiting period, you may have income protection providing payments if you are unable to work. TPD then provides the lump sum once permanence is established.
The waiting period also gives time for medical assessment and prognosis confirmation.
How Much Cover
TPD cover amounts range widely, typically from $100,000 to several million dollars. Consider what you would need if you could never work again.
Think about paying off your mortgage, funding modifications to your home, providing for ongoing care needs, and replacing the income you will never earn.
Many people align TPD cover with their life insurance amount or their remaining working years of income.
Relationship With Life Insurance
TPD is often sold alongside life insurance or as a rider to life policies. If you make a TPD claim, your life insurance may reduce by the TPD amount paid.
Some policies accelerate life cover for TPD, meaning a TPD payout reduces or eliminates your life cover. Others have standalone TPD that does not affect life insurance.
Understand how your policies interact before you commit. Accelerated benefits cost less but leave less for your family if you die after a TPD event.
When Claims Are Assessed
TPD claims are complex because insurers must determine that disability is permanent. Medical evidence, specialist opinions, and functional assessments all contribute to claim decisions.
Insurers may wait to see if recovery is possible before accepting permanence. This can be frustrating if you know your condition will not improve, but insurers must verify permanence.
Claims can take longer than life insurance claims because of this assessment process.
Common TPD Conditions
Accidents causing severe spinal injuries, traumatic brain injuries, or loss of multiple limbs often result in TPD claims. The physical impact makes working impossible.
Progressive neurological conditions like motor neurone disease or advanced multiple sclerosis may qualify. These conditions gradually eliminate work capacity.
Severe strokes, serious cardiac events with lasting damage, and some mental health conditions can also result in TPD claims.
Cost Considerations
TPD premiums are significant because the payout amounts are large and claims, while uncommon, do occur. Premiums depend on your age, health, occupation, and cover amount.
Stepped premiums increase each year as you age. Level premiums stay constant but start higher.
Any occupation definitions cost less than own occupation because claims are harder to qualify for.
Making Your Decision
Consider whether TPD cover fits your protection needs. If you have substantial assets or other resources, you might manage permanent disability without TPD cover.
If becoming permanently disabled would devastate your finances, TPD provides the lump sum to rebuild your life.
Many people include TPD alongside life and income protection for comprehensive coverage against different scenarios.
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