Income protection vs total permanent disability (TPD) insurance: Which cover best fits your needs?

Key differences between income protection and TPD insurance 

What is income protection insurance? 

It’s expensive to live in New Zealand with the cost of living for one person in a major city estimated at $4,000-5,000 per month and a family of four at $6,000-$7,000 per month. 

These figures are daunting. How long could you afford to live without an income in New Zealand if illness, injury, or disability prevented you from working? 

Income protection insurance safeguards your financial stability by providing a monthly income while you're unable to work due to a critical illness or injury. Income protection is especially valuable if you suffer from a health issue that requires long-term recovery and is not covered by ACC.

You’ll receive a regular percentage of your income, often up to 75% less offsets. This amount can help you maintain regular financial commitments, like debt repayments, mortgage or rent, utilities, groceries, and other daily bills. It can also help with rehabilitation, therapy, and medications.

Your monthly benefit will start at the end of your selected waiting period, which can range from several weeks to a few years, and continue until you resume working or for the duration of your chosen benefit period (such as 2 years, 5 years, or until age 65 or 70).

Income protection insurance benefits 

Income protection insurance provides a monthly benefit if you are totally disabled and can’t work. In case of a partial disability that forces you to work fewer hours, some plans provide a partial disability benefit to help make up for your lost income.

Depending on your chosen income protection product, benefits might also include:

• Home modification and equipment expenses benefit: Subsidises the costs of buying specialised equipment or completing home modifications because of your disability
• Vocational or retraining assistance: Provides additional financial support if you take a vocational or re-education programme so you can get back to work
• Bed confinement and full-time carer support: Provides benefits if you're confined to bed for several days or need home care
• Return to work benefit: Provides additional payments if you can return to work within a specified period after claiming.

You can get income protection as a standalone plan or combine it with mortgage protection insurance to maximise the benefits you can receive in case a serious, long-term health issue keeps you from working. Some plans also allow you to add redundancy cover, include mental health benefits, or top-up the sum insured amount.

What is TPD insurance?

With one occurring every 55 minutes , stroke is among the leading causes of death and serious adult disability in New Zealand.  

If you were suddenly totally and permanently disabled by a stroke, how would you manage?

TPD insurance offers a lump sum payment when a policyholder becomes permanently disabled and unable to work in their occupation or any suitable role. Total and permanent disability insurance focuses on long-term disabilities that are anticipated to last forever and covers scenarios such as a severe accident, illness, or medical condition.

Your TPD payment can be used to cover major costs, such as your mortgage, as well as regular household expenses, like rent, utilities, and debt payments. It can also pay for your spouse or another family member to take time off work to care for you, help with childcare costs, home modifications like wheelchair ramps, travel costs to medical appointments, or the costs of transitioning to a new career.

Insurers typically offer three types of TPD cover:

1. Own Occupation TPD: Your lump sum benefit will be paid if your permanent disability prevents you from working within your current role or industry. This means that you can claim even if you are still working, albeit in a different role.
2. Any Occupation TPD: You’ll receive your lump sum benefit if you become permanently disabled and unable to perform any work suited to your education, training, or experience.
3. Modified TPD or non-occupational cover: This applies if you are not in paid employment (e.g., homemakers, students) or do not qualify for Own or Any Occupation TPD. You will receive a lump sum benefit if you permanently lose your sight, limbs, or cognitive ability, you can no longer perform full-time household duties, or you are unable to perform at least two daily living activities without physical support.

TPD insurance benefits 

TPD insurance pays the full lump sum cover amount if you are totally and permanently disabled due to an illness or injury. The exact amount depends on the sum insured you selected when you took out your policy, which can be a maximum of $5 million. 

In case of a partial permanent disability (such as losing a limb or sight in one eye), you may also receive a partial lump sum payment.

Depending on which TPD insurance product you choose, your benefits might also include:

• Assistance or reimbursements for financial and legal advice on the best way to use your payment
• The cost of psychologist or psychiatrist consultations for you and/or your family if the sessions are claim-related.

You can get TPD cover either as an accelerated benefit (your claim will be deducted from your life insurance) or as a standalone plan (your TPD claim will not impact your life cover amount).   

TPD cover vs. income protection insurance: Assessing your needs

TPD insurance provides a one-time lump sum payment if you become totally and permanently disabled and unable to return to your normal or any occupation. In some instances, you may be eligible to receive a TPD benefit even if you have gainful employment, such as if you lost a limb due to an illness or accident but are still able to continue working. 

Those doing unpaid work, such as stay-at-home parents or students, can also get TPD cover and receive benefits if they suffer a specified permanent disability. 

However, if you suffer a long-term illness or injury that doesn’t lead to a permanent disability, you will not be able to file a claim.

Income protection insurance provides a regular monthly payment if you suffer a total or partial disability that leaves you unable to work for a period of time. Unlike TPD insurance, which covers permanent disability, you can file an income protection claim regardless of whether your disability is temporary or permanent. This ensures that you can cover your expenses even if you’re in long-term recovery from an illness or injury.

When deciding which cover would be best for you and your family, consider factors such as:

• The nature and risk level of your work: High-risk occupations may be better suited to TPD insurance or combining TPD and income protection cover.
• The financial needs of your dependants
• Your lifestyle
• Your living expenses, debt payments, other financial commitments, medical needs, and retirement plan
• Resources you already have (health insurance, trauma insurance, savings, and other income) that can help cover your expenses. You could add your TPD or income protection policies to your existing insurance portfolio.

RECOMMENDED READINGS

Income protection vs trauma insurance

Income protection insurance vs mortgage protection

Trauma insurance vs disability insurance

What ACC does not cover and how to fill the gap

How Policywise can help

Policywise is a 100% free service which tells you which health, life, and disability insurance provider best fits your needs. We offer fast, comprehensive, and easy-to-understand comparisons of all leading providers, and a simple summary clearly recommending which insurer is best for your situation.

Not all insurance policies are the same. Policywise can help you sort out the duds, avoid the lemons, understand the fine print and exclusions, and get the right insurance for you and your family.

We make the important decision of where to buy your insurance super easy. We’ll answer your questions, provide experienced advice and quotes, and manage all the back and forth throughout the application process. Taking out your cover through us means you'll have our lifetime support and claims advocacy, and we'll help you negotiate a positive outcome at claim time. We can also take care of lodging any claims on your behalf and back you up if the going gets tough.

Check out the reviews on our homepage for how other New Zealanders have found our service because now is the time to get your income protection or TPD insurance sorted. Give your family or someone you love the most outstanding financial support possible. Book a 5-minute callback with Policywise today; our service is fast and free.

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