In defence of insurance companies not paying out on TPD

INSURANCE is a necessity, but it's a sad reality that many policyholders end up disappointed when the time comes to make a claim.

Often, it is only then that they discover the product they bought was not what they thought it was.

Today, let's examine Total and Permanent Disability (TPD) an area where misunderstandings commonly occur.

TPD has been making headlines in the last few weeks as claims are being denied by insurance companies in situations where policyholders felt they were being unfairly treated. But the words "total and permanent" mean exactly what they say, and the fact that you are let go from one position because something happens in your life that makes you unable to work in that job does not normally entitle you to claim unless your policy includes an "own occupation" clause.

For example, an outdoor worker may have a serious injury, which precludes outdoor work in the future, but that may not stop them getting a job in a clerical role. Unless their policy included an own occupation clause the claim would be denied.

Here is the killer: many people tick the TPD box when arranging insurance through superannuation, and think they are covered. But in 2014, legislation was passed making it illegal for TPD insurance taken out within superannuation to have an own occupation clause.

The purpose of this was to prevent insurance payments being trapped inside super until retirement due to the strict application of the rules of release.

Therefore, if you need an occupation-specific TPD insurance you need to set it up outside of superannuation.

It's worthwhile taking advice. It may be possible to have part of your TPD policy inside super and part outside super.

Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Email:

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