Total and permanent disability (TPD) insurance is a type of life cover that protects policyholders against the risk of suffering a serious injury or illness that prevents them from ever returning to work.
Many people have access to TPD cover through their superannuation policy, although others may choose a standalone product from an insurer if they have tailored needs. Payouts are used to cover past and future income losses, medical bills, care and rehabilitation needs, out-of-pocket expenses and other costs.
However, policyholders must meet certain criteria to receive payments, which means there is always a chance the insurer or super fund refuses to approve the claim. But how often does this happen in Australia?
TPD claims rejected more than any other life insurance
In 2016, a comprehensive ASIC report into the life insurance industry examined the decline rates of four types of cover:
- Life (cover for death).
- Income Protection.
Overall, nine out of 10 life insurance claims are paid in the first instance, but the figures for TPD cover were less encouraging.
In fact, disability insurance was the least likely of the four products to result in compensation, with 16 per cent of claims rejected. Some insurers had particularly high decline rates; ASIC found three companies turned down 37, 25 and 24 per cent of claims, respectively.
Fewer than half of funds make full or partial payments on between 71 and 90 per cent of claims, according to SuperRatings. The research, published in the Australian Financial Review, also showed nearly one in ten successful policyholders receives less than 60 per cent of the amount claimed.
Mental health claims are more prone to rejection
A former executive at a top insurer recently described the way the industry treats mental health claims as “disgusting”.
Talking to ABC News, Patrick O’Connor previously worked at TAL, but he was forced to leave his position in 2013 after developing severe anxiety and depression. He tried to claim on two TPD policies with TAL, yet only one was paid – and that was three years later.
His second TPD request was initially turned down, although TAL eventually approved the payout two days after being contacted by ABC News.
“If the system for how mental health is treated in the insurance industry is reflected by my experience, then that is disgusting and it has to be changed,” he explained.
Insurers often reject mental health conditions because symptoms can vary with severity over time and some people may recover sufficiently to return to work.
But don’t give up hope. If your TPD claim has been rejected, you may still have options.