Total and Permanent Disability Insurance exists to protect against the financial losses incurred by a permanent impairment preventing an individual from returning to work. TPD insurance, however, does not just protect the impaired party’s personal financial needs, but can also be used as means of financial protection for the business they will potentially be exiting.
Appreciating the differences between business needs and personal needs for TPD insurance is integral to the formation of a succinct and appropriate policy. Here is a breakdown of the differences between the two.
The Business Need
Some may decide to use their TPD insurance benefit to cover the potential business expenses or losses on leaving their business should they become permanently unable to work.
Essentially, TPD insurance is the protection against the cost of the insured person unexpectedly being forced to cease work, including the financial implications of a potential loss of productivity and income, and the replacement of an experienced worker. The TPD Insurance payout can go towards whatever needs are present in the business at the time.
It is a complicated sum to work out because it is difficult to be certain of many variables. Time factors, skill levels, availability of replacements, training gaps and other unknowns make the business need difficult to estimate. To overcome this, accepted industry formulas are applied based upon performance criteria, this is something your insurance broker can help you with.
The Personal Need
The personal need for TPD insurance is the mitigation of the financial impact on the insured’s income and wealth if permanently unable to work. The financial impact includes recurring and one-off expenses, and current and new expenses.
Current expenses refer to those existing at the time of injury. These include recurring expenses such as loan repayments, school fees, and general costs of living, as well as one off expenses like a holiday or asset depreciation.
New expenses are those that result from the occurrence of the permanent impairment. They may be recurring such as medical costs, nursing expenses, medication and rehabilitation, or one-off expenses like home modification costs, or a car suited for the injured party.
Business vs Personal
One of the key differences between the business and personal need for TPD insurance is who the costs of a permanent impairment will fall upon, and the flow on effects of ceasing employment. You may choose to base your insurer sum on either the business needs, or what will be your personal financial needs. TPD insurance will generally cover the ‘gap’ of funds which Workers Compensation or Income Protection cannot.
Generally in a formal business arrangement, a business will hold no responsibility for the majority of costs associated with total and permanent disability at the personal level, if any. These costs are often mainly medical in nature, and will be borne by the affected individual.
Further, in a personal situation it is necessary to consider the effects upon those financially reliant upon, or financially responsible for, the insured party. This will include dependants, family and any others linked to the insured party, and will not be a need applicable in a business sense.
Don’t let an unexpected tragedy ruin you
Permanent impairment can happen anytime, anywhere, without warning and without remorse. So call Trade Cover Financial Services today to protect yourself, your business and your loved ones against financial hardship should tragedy strike you.