The difference between TPD and trauma cover: 15 terms you need to know
Life insurance, TPD, trauma, and income protection policies can be confusing areas to navigate. Here are some common insurance terms to help you start.
1. Life insurance
The term life insurance may be a misnomer as it is the insurance that can only be claimed upon the death of the policy holder. The exception is that for terminal illness or some critical illnesses may allow payment to be paid earlier.
2. Income protection
This insurance is for extended periods where you are unable to work due to accident or illness. Payments are typically paid monthly at an agreed proportion of your salary, for an agreed period - which may be from six months to two years or to age 65. These are variables which are agreed in establishing the policy.
Total Permanent Disability insurance (TPD) will pay a lump sum to policy holders who are totally and permanently disabled and unable to work. There are two types of cover that you might have under TPD, and they are own occupation or any occupation.
Own occupation is more expensive but will pay out if you can demonstrate you are unable to work in your current occupation or field ever again.
Any occupation, which is cheaper, will need you to prove that you cannot work again in any occupation.
4. Trauma or critical illness insurance
This insurance will provide a lump sum payout for various critical illnesses or injuries. This typically includes cancer, heart conditions, stroke or other serious intensive-care events. It does not cover mental health conditions.
5. Agreed value
This refers to the income protection payment amount that you will receive as agreed when you applied for the policy. It makes clear the benefit amount you will receive if a claim is made. It is typically based on 75% of your income, which you need to prove when applying. It is no longer available for new income protection policies but may continue on established policies.
The claimant is the person making the claim.
7. Duty of disclosure
It is the policy holder's responsibility to disclose any relevant information about their health as required when applying for insurance. If this is not done and later is found out when a claim is made, an insurer is within its rights to refuse to pay the claim.
An exemption refers to a condition that might be accepted by the insurer as existing but will not cause an insurance payment to be made. For example, if you have a heart condition and the insurer agrees to insure you, your policy may state heart conditions will be exempt from as the cause an insurance claim is to be paid.
9. Grace period
The grace period is the amount of time past the date when an insurance premium payment is due in which the insurer will still allow your coverage not to lapse. This varies between insurers and policies and may range between 24 hours or 30 days.
10. Group insurance
This refers to insurance which is calculated as part of a group - typically taken through employer superannuation schemes. Group insurance is not subject to individual underwriting but instead creates a pool of people which averages the risk for the insurer and allows those who might otherwise be subject to higher premiums or be refused cover to obtain cover. Before cancelling or combining super funds, it is always good to check the insurance cover you hold and make sure you are not losing any coverage.
11. Indemnity value
An indemnity value income protection policy (as opposed to an agreed value) will pay your monthly benefit on your gross income at the time you make a claim. You will need to prove your income at time of claim, not at the time of your application for insurance.
Non-disclosure is the failure of a policy holder to disclose an important piece of information to the insurer which may cause a refusal to pay a claim as it is seen as a violation of good faith. However, this is a grey area and if the non-disclosure was innocent but if the insurer can prove it may have refused the policy or charged a higher premium if the full disclosure was made it can reduce the claim or reject it.
This is the amount you pay for your insurance. It may be paid monthly, quarterly, biannually or annually. The premium is typically based on age, health, occupation and gender.
Underwriting is the process that calculates the risk you pose to the insurance company through the policy you seek to purchase. It involves actuarial calculations based on age, health, gender and occupation and will determine whether the insurer will issue a policy and the premium that will be charged.
15. Waiting period
This is the agreed time you will need to wait before your benefit is paid. Typically, the longer you agreed to wait in your policy, the cheaper the policy will be.