02 Oct 2023
TPD insurance: 3 common mistakes you might be making

TPD insurance: 3 common mistakes you might be making 

The total and permanent disability insurance market is a complex area, with several products and options that are separate but interrelated. Getting disability insurance coverage wrong can cost you a lot of money, also meaning that you are not covered when you need it.

In the total and permanent disability cover, the products, options, and interconnections are often confusing and difficult to understand. Thus, people may undervalue it. But ultimately, it’s about protecting you from losing your ability to work due to a serious illness or accident. After that, it’s hugely significant – it can make all the difference between financial stability and bankruptcy.

When it comes to TPD insurance, advisers regularly observe numerous mistakes being made. Many such mistakes are caused by a lack of understanding of how the various types of insurance work and how they relate to one another. It is the adviser’s responsibility to explain and combine the various types of insurance so that the most effective and affordable option can be selected. The following are three of the most frequent mistakes identified by the most trusted underwriting agency in Australia:

A lack of understanding of cover:

It is common for advisers to report that clients are unaware of how their policies work or what benefits they are entitled to. When it comes to total and permanent disability insurance, there are a variety of products and variations available. How should you choose between accelerated and stand-alone buying? How long should I wait before applying for income protection? Is it a good idea to add a buyback option if accelerated? What is the difference between indemnity and agreed value? A properly constructed policy maximizes benefits for a given budget. To best suit, the specific needs of a client, specialist skills and knowledge are required to ‘design’ the insurance portfolio.

Cover not reviewed:

It is especially important to review TPD insurance on a regular basis. You should review it every two years to make sure your insurance meets your needs as your situation changes, if not more often. Additionally, it acts as a tool for identifying entitlements. One adviser, for example, claims that a client who broke his leg was entitled to a specific benefit claim. The issue was only highlighted after the review event by an adviser. According to our discussions with advisers, we hear many instances where advisers identify a client’s claim entitlement that they were not aware of.

A price-driven approach:

Australian insurance advisers make the same point. Many clients did not seriously consider the financial impact of a long-term illness, although they were happy to insure their car, their boat, or their home despite budgetary constraints. In many cases, people prioritize insuring their home above their income-earning ability since being unable to work could be even more disastrous than having their home destroyed.


Having to cancel due to cost:

Cost reduction is our first response when financial constraints begin to bite. People often try to cut insurance expenses because the benefit is not immediately felt, i.e., you’ll feel the loss only when you’re without it, and you’re losing out. In the event of a long-term disability, clients often cancel everything, leaving them without insurance. To reduce the overall cost, it is better to consider restructuring your insurance while still maintaining some level of protection against unforeseen health issues.


This article is merely for informational purposes. Its content is intended to be general, does not consider your financial situation or goals, nor does it constitute a personalized financial adviser service. Before acquiring any financial product, seek advice from a financial adviser who will take into account your individual circumstances. Interested in finding an adviser? Contact us now.

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