TPD insurance: total and permanent disability cover

TPD insurance answers a specific question: what happens to your finances if you never work again? Not if you are off work for a year — that is income protection. Not if you are diagnosed with a serious illness and recover — that is trauma cover. TPD is for the permanent end of your earning life, and it pays a single lump sum when that is established.

The costs it is bought to meet are large and structural. A mortgage that can no longer be serviced. A house that needs modifying for a wheelchair. A vehicle that needs adapting. Care that ACC will not fund because the cause was illness rather than accident. And forty years of income that will not now arrive.

The ACC point that changes everything

New Zealand’s accident compensation scheme covers injury, not illness. Someone permanently disabled in a car crash receives weekly compensation, treatment and rehabilitation from ACC. Someone permanently disabled by multiple sclerosis, a stroke or a degenerative condition receives none of that, and falls back on a benefit. TPD insurance exists mostly to cover the illness half of that divide, which is the half New Zealanders are least protected against.

Every TPD claim is assessed against an occupation definition written into the policy. There are three in common use in New Zealand, and the gap between them is enormous.

A surgeon who loses fine motor control in one hand is totally and permanently disabled under an own occupation definition and almost certainly not under an any occupation one, because they could teach, consult or examine. The medical facts are identical. The claim outcome is opposite. That is why the definition is worth more than a premium difference.

Occupation class governs what you are allowed to buy. Insurers generally reserve own occupation cover for lower-risk occupation classes, so a builder or a farm worker is unlikely to be offered it at any price. That is not something an adviser can negotiate away, but knowing it before you apply changes what you should expect and how you size the rest of your cover.

Three structural decisions sit alongside the definition, and each of them changes what the cover does.

Accelerated or standalone

Most TPD in New Zealand is accelerated against life cover, meaning a TPD claim reduces the death benefit by the amount paid. Standalone TPD is a separate sum insured and costs more. Where the family would still need the life cover after a TPD claim — and with a permanent disability, they usually would — that difference is worth pricing rather than assuming.

How much cover

1. 1Start with the debt you would want cleared, because servicing a mortgage on a benefit is not realistic.
2. 2Add the cost of modifying a house and a vehicle, which is the expense people consistently underestimate.
3. 3Add ongoing care costs that ACC would not fund if the cause were illness.
4. 4Add a capital sum that could generate some replacement income over the remaining working years.
5. 5Subtract other cover — income protection to age 65, employer benefits, KiwiSaver you could access on serious illness grounds.

When it expires

TPD benefits usually expire earlier than life cover, commonly at 65 or 70, and the definition often changes as you get older — several insurers switch from an occupation-based test to an activities of daily living test at a stated age. Check both the expiry age and the age at which the definition changes, because the second one is easy to miss.

TPD has the longest and most contested claims process in personal insurance, for a structural reason: permanence is a prediction, and predictions are arguable. Cancer either meets a definition or does not. Death is not in dispute. Whether a 41-year-old with chronic back pain will never work again is a matter of medical opinion, vocational assessment and time.

• Insurers usually require a waiting period — commonly three or six months of continuous total disability — before assessment even begins.
• Medical evidence is required from treating specialists, and often from an independent specialist the insurer appoints.
• Vocational assessments may be used to test what work you could reasonably do, particularly under an any occupation definition.
• The insurer will consider whether further treatment or rehabilitation could restore capacity, which delays a permanence finding.
• Where the claim is under an any occupation definition, retraining potential is squarely in scope.
• Non-disclosure at application is scrutinised harder here than on almost any other claim, because the sums are large.

None of that means claims are not paid. It means the process is long, the evidence matters, and having someone who has run these claims before makes a material difference to how they are presented.

Every New Zealand insurer writes TPD cover to its own wording, and the words are where the money is. Two policies that look identical on price can pay very differently when it matters. Closing that gap is the entire job of an adviser.

• Which insurers will offer own occupation cover for your specific occupation class differs, and it is not always the insurer with the best premium.
• Some policies change the definition at a stated age from occupation-based to activities of daily living — the age and the trigger vary.
• Partial or permanent impairment benefits sit alongside full TPD on some products and pay where the full definition is not met.
• TPD buy-back of life cover after a claim is offered by some insurers and not others.
• Where TPD is accelerated, an adviser can model what the family is left with after a claim and size the life cover accordingly.
• For home duties cover, maximum sums insured and the definition of the duties themselves differ substantially.

There are three ways to buy life cover in New Zealand, and they are not equivalent. You can buy direct from one insurer, which means you see one product range and one underwriting appetite. You can buy through your bank, which usually means a single insurer’s product sold under the bank’s brand, often with narrower definitions. Or you can go through an adviser, who quotes several insurers at once and is required to put your interests first.

The premium you pay is the same either way. Insurers build adviser commission into their pricing whether or not an adviser is involved, so going direct does not get you a discount — it just removes the person whose job is to argue your corner at application and at claim time.

• An adviser can see which insurer is currently taking your health history on standard terms, and which one will load or exclude it.
• An adviser can structure cover across two insurers if that produces a better outcome than putting everything with one.
• An adviser handles the underwriting back-and-forth, and is the person who chases the claim when a family is least able to.
• An adviser has to document why the recommendation suits you, which is a written record you can hold them to.

We are a referral service, not an insurer. We do not quote premiums and we do not sell policies. What we do is put you in front of one licensed New Zealand adviser who can compare the market properly.

1. 1

   You tell us what you are looking at

   The form takes about a minute. Nobody asks for your medical history on a web form — that conversation happens with the adviser, properly, and only once you have decided to proceed.

2. 2

   An adviser calls you

   A licensed New Zealand adviser talks through your situation: who depends on you, what you owe, what you already have in place, and what you are actually worried about.

3. 3

   They compare the market

   The adviser quotes across the major insurers, checks which of them will take your health history on the best terms, and puts the options side by side in writing.

4. 4

   You decide, in your own time

   There is no obligation and no cost to you. If the answer is that you already have enough cover, a good adviser will tell you that.