Hi, I'm Don Bish. This is the Volfster Risk Management Podcast. It hit dedicated to helping you through your personal insurance journey. Remember, personal insurance involves things like life illness, medical and mortgage repaints.
We're not doing insurance. Involves your car, your boat, your house or your pet dog. Right, so this is episode 41. TPD has sometimes known as a work dependent benefit.
So TPD is total and permanent disability. This means that if it pays you if you are never able to work again, that's the permanent part. But, and there is a but, it may not be entirely that permanent. Confused?
Good, well, you can carry on. I'll hopefully explain that for you. So the key points, what is TPD? What is permanent?
And then we're just going to talk about it, versus any as occupations. And what the numbers say. So total and permanent disability TPD, it's just easier to say that it pays your lump sum, tax-free. It is an amount in case you never able to work again.
So from a risk perspective, people have this type of cover to give them protection in a few ways. So I'll use a couple of examples just to highlight some of those. So if someone is younger, perhaps in their 20s or 30s, they potentially have, say, two to three decades of work ahead of them. So from a lost earnings perspective, let's see what that looks like.
So if we use an average user lending income around, let's say 60,000 gross a year, that means that for an employee contributing standard 3% to Kiwi Saver, the net income will be around 46,300 a year. So over 30 years, that's $1.38 million of lost earnings, assuming that person was currently disabled. Now, I do agree that a person's living costs may decrease with a disability, however, there could also be additional costs ongoing care and support. Right, essentially though, it's a blunt example, but it shows how some people could go about establishing a benefit amount for a lump sum.
So trying to replace that 1.38 million of lost earnings. Another example is to look at a debt repayment situation. So let's say there's a family, a family owes maybe 500,000 on mortgage and other debts. It costs maybe 2,500 a month to service these debts.
So if the main income owner has an accident or is ill or is something that means that they can't ever work again, that family is at risk. So who's going to pay for the debts? So a TPD lump sum payment could be used to clear all the debt. We also have the added bonus, of course, of free not paying that term, usually for $2,500 worth of commitment each month because those debts don't need to be serviced.
And lastly, where costs and budgets are a factor, there is an unmetered. So some people will look at having some time for breathing space. So what do I mean by this? So in the event that something terrible happens, a family or a single person may want a few years of breathing space while they figure out what they're doing a new living situation.
This, the method then to use is like a multiplier on their income for the number of years that that client thinks they'll need. So we're using a above example of a person on 60K a year that let's say they want three years of an adjustment period or a breathing space. So the amount being would be three times 60,000,000, 70,000. Again, the client might choose to use gross figures on their figures.
But those examples are really just fairly simplistic, but they still indicate how a client might actually choose to use a TPD or total permanent disability product in their product stack. So what is permanent? And this is where we talk about own versus any and that's an occupation status. So because we're talking about the inability to do your work, the main variable will just start a product is whether you opt for own occupation or any occupation.
And that one would mean a world difference. And the point on the application, so it's a very simple thing. You need to specify the type of car up front before we start paying premiums. From a pricing perspective, own occupation will cost more than any.
So it comes down to whether you are too sick or incapacitated to work in just your own occupation or if you are severely munted. Yes, I think it's a technical term you probably heard before and you can't work in any occupation at all. So let's go back to a couple of examples. So this is one for an accountant.
Maybe they lose their site and they operate the site to operate a computer and play around with the clients, cash, play, full costs and all that type of thing. And say that person loses their site in both eyes. It's unlikely that they'll be able to continue in their own occupation as an accountant. In this case, they would get their TPD payment for own occupation.
Potentially though, they could retrain, become maybe a call center operator helping people on the phone. If their TPD was classed as any occupation, they might not get any payout from their provider because they can retrain and do another type of role. If however the same accountant was unable to feed, dress or shower by themselves, they know it most likely make the requirements for any occupation definition. All right, so what do the numbers say?
So giving generic prices always a bit problematic and if you are regular, a listener you'll probably recognize that line from the life insurance example I gave a couple weeks ago. However, let's be a bit consistent around this. So I do come across people who they tend to struggle with life insurance or disability insurance and assume that it's actually more expensive than it is. So I'm just going to give two examples to see how I've indicated.
What even a modest amount can be and that it can be actually as affordable as maybe a couple of two of coffee a week. So let's see Brian. So Brian's 45 is a non-smoker. We're going to give him $250,000 worth of TPD cover, own occupation and that will cost him somewhere around $7.72 or maybe $8.40 a week.
Let's look at Julie, Julie's 30 and non-smoker. Now we're going to give her more. We're going to give her $500,000 of total permanent disability cover. Again, own occupation.
But her, it would only be $3.24 or maybe up to $5.51 a week. So these premiums really, they could be leveled. So that means that the premium remains constant each year. Leveling premium does change the prices above that gave us now.
But leveling premium is a good cost effective option for me people. Be careful with the prices are giving you. Obviously I'm not giving personalized advice, but they are there to highlight. Now, so TPD does seem like it's some kind of contagious disease, but it's not.
It is actually extremely useful. It's a very good product to have any product stack in terms of your personal insurance. Speak with your advisor if you want to find it more. If you can't remember your advisor's name or have you haven't spoken to them for a few years, then it's probably time to give me a line.
That's all for now. Speak next time. See you. .