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How Does Income Protection Insurance Differ from Total and Permanent Disability Insurance?

by Olufisayo

When it comes to getting a reliable insurance policy that works in your favour and is tailored to your needs, you might come across a number of various insurance types including income protection insurance and total and permanent disability insurance (TPD).

So, if you’re wondering what these two are and which one would benefit your situation the most, you’ve come to the right place. In this blog, we will cover the differences between the two, ultimately helping you determine which type of insurance is best for you.

Income protection insurance

Income protection insurance is an insurance policy that pays out a percentage of your monthly salary should you find yourself unable to work due to injury or illness. Monthly payments will be made until your recovery.

You will find that most income protection insurance policies pay out between 50% to 65% of your income and can be claimed multiple times while your policy lasts. These policies can typically cover a wide range of injuries and accidents.

Total and permanent disability insurance

On the other hand, total and permanent disability (TPD) insurance is usually included with a critical illness insurance policy that pays out a lump sum if you are diagnosed with a specific medical condition. However, some insurance providers might offer it as an optional extra at an additional cost.

TPD only pays out a lump sum if you are permanently disabled or unable to work for the rest of your life, but your condition does not have to be related to a listed medical condition that is covered by the critical illness policy.

The factors that affect the amount that is paid out is dependent on the policyholder’s occupation and medical history. A TPD claim is more likely to be successful if the claimant is able to prove that they are unable to work due to their irreversible condition.

There are different definitions of TPD, but the likelihood of a successful TPD claim increases if you find that if you are permanently unable to any of the following:

  • Do your own job (own occupation)
  • Do a job that you are suited to via your experience or education (suited occupation)
  • Do any job (any occupation)
  • Some basic activities of daily life (activities of daily living)

It is important that you take note of the wording of the definitions as these can vary between insurance providers. Your claim must be able to satisfy the insurance company’s specific TPD definition.

Which one do you need?

So, which type of insurance do you need?

It may be worthwhile to note that the two offer different benefits under different circumstances. In the case of income protection, this can be useful in helping you pay off monthly debts when you are out of work due to an illness or injury. Meanwhile, TPD can offer a lump sum payment, but this amount is dependent on how your insurance provider perceives your situation.

Keep in mind that some employers might offer group income protection insurance, so it’s worth considering taking this up and also getting TPD insurance as an extra measure of financial protection.

Photo by Antoni Shkraba

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