Our Certified Financial Planner® at Precision Wealth Management often gets asked the question: “How much TPD Insurance do I need?”
This is actually a difficult question to answer for a few reasons.
Firstly, it is impossible to know exactly what your specific health and care needs might be if you do become eligible for a Total and Permanent Disability claim.
So, in this blog and video below we run through the key factors to consider when deciding what an appropriate amount of cover might be.
DISCLAIMER – The information provided in this blog is general and does not consider your individual financial needs or objectives. It does not constitute personal advice. We recommend seeking out professional and independent financial, legal and tax advice which has been designed for your individual situation before acting on any information contained below.
How much TPD Insurance do I need?
At Precision Wealth Management, we believe it is near impossible to determine exactly how much TPD insurance cover you’ll need before you’re ever in the situation where you need to make a claim.
We have offered financial advice to numerous people who have had successful TPD claims, and they had varying circumstances that resulted in vastly different financial requirements.
So, while we cannot suggest an exact amount of TPD Insurance that would suit everyone, we do believe that the higher the amount the better. This is because more money in this situation can really take a lot of weight off your shoulders and help remove any financial worry. Having said that, this needs to be carefully balanced with the cost of the premiums as most people will not make a claim and should avoid paying unnecessary premiums where possible.
But on the flip side, even a more modest amounts of TPD insurance such as $200,000 or $300,000 can be a massive help for people.
EXPERT TIP: A lot of people have TPD insurance within their industry super fund, which is typically set to a “default” amount. It might be somewhere in the vicinity of $300,000 or $400,000. I would implore you to at least look at your superannuation policies and make sure you’ve got at least a base level of cover to know that you’ll be okay if the worst happens.
Considerations for determining a TPD Insurance Amount
The circumstances surrounding a total and permanent disability and a resulting insurance claim will be different for everyone. However, here are a few items which may need to be taken into consideration when determining how much cover may you need:
- Medical rehabilitation costs:
Depending on the cause of your total and permanent disablement, there may be ongoing medical costs for the rest of your life.
How big is your mortgage? Do you want to think about paying it off?
Is your current house appropriate for life with your total and permanent disability? Or can you stay in the home if renovations are carried out?
For example, if you are now in a wheelchair, a two-storey home may no longer be suitable, or the bathroom and kitchens may need upgrading to improve accessibility.
- Ongoing income stream:
Ideally, as part of an overall insurance plan you’ll have income protection, so you may not need to use your TPD payout for ongoing income.
In saying that, income protection will not fully cover your wage, so you will need to consider the rest of your financial life, children, spouse, et cetera, and if you need additional TPD cover to perhaps provide an ongoing income stream.
- Carer’s wage:
We have worked with clients whose spouse has had to quit their own job to become the full-time carer of their disabled partner. When you start talking about that, you might need to add $500,000 – $1 million to allow for ongoing care of the person.
How Much TPD Cover Do I Need?
While it is very hard to offer a generic answer to the question about how much TPD insurance you need, what we will say is, if you’re ever in an unenviable situation of making a claim on TPD, the more cover, the better – as it will undoubtedly help to ease the weight of future financial burdens.
Having said that, even small amounts of cover do help immensely with reducing anxiety and stress around finances.
We hope this information has been useful and if you have any questions at all please don’t hesitate to get in touch with us by calling 1300 200 012.
Precision Wealth Management is a local, privately-owned financial planning firm based on Brisbane’s northside.
Our certified advisors work with each individual client to determine the best wealth creation strategy based on their unique situation.
We strive to stay at the forefront of the industry, and our investment approach is based on decades of research.
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Our services include Superannuation Advice And Planning, personal Insurance Advice, Budgeting And Cashflow Management, Investment Strategy And Advice, Aged Care Financial Advice, Retirement Planning Advice, and Debt Reduction Financial Planning.
At Precision Wealth Management, we offer flat fee pricing which is determined on the complexity of the work – not the value of your investments.