Is disability insurance worth it? Here’s why it’s important for Kiwis

What is disability insurance?

Disability insurance - also known as TPD (total and permanent disability cover) - provides a non-taxable lump sum payment if a total or partial permanent disability prevents you from going back to your occupation, whether you're employed, self-employed, running a business, studying, or managing unpaid household duties. 

Aside from the lump sum benefit, your plan may also include additional benefits, such as:

• Reimbursements for professional financial and legal advice on how best to use your TPD claim
• Payments for psychologist or psychiatrist consultations 
• Reimbursements of costs incurred to go back to New Zealand if you suffer a complete disability while living overseas
• Support for your companion’s accommodation and transportation expenses if you need to go to another region for medical assessment or treatment.

The costs of supporting yourself and your family and modifying your lifestyle to accommodate your disability can be daunting. Disability insurance provides a sturdy nest egg to assist in paying for new expenses and existing commitments, including: 

• your medical costs
• hiring caregivers if you can’t do daily tasks alone
• replacing your family caregiver’s income
• specialised equipment and home or vehicle alterations
• additional childcare costs, if you or your partner need help looking after your kids after your disability
• support to switch to a different occupation or income-generating activity
• day-to-day expenses, such as food and transportation
• rent or mortgage payments
• student loans
• personal debts
• insurance for you and/or your dependants. 

What do insurers consider a total and permanent disability?

Depending on the type of TPD cover you have, this definition can be based on occupational or non-occupational criteria.

• Own occupation. You’re unable to do your pre-disability occupation, but you may or may not have the capacity to work in a different role.
• Any occupation. You can no longer work in your pre-disability job or any job suitable to your education and work experience.
• Own and Any occupation. You’re unable to ever work again due to your medical condition or injury. 
• Non-occupational/modified TPD cover. You suffer specific conditions defined in your policy, such as loss of limbs, sight, cognitive function, or inability to perform at least two activities of daily living.

Talk to a  Policywise adviser for help in choosing the right type of disability cover. It’s much easier to navigate with an expert at your side.

Why is disability insurance important for Kiwis? 

1. Disabilities can happen to anyone at any age.

• In 2023, about 17% of New Zealanders were disabled. 
• The disability rate for adults aged 15-44 was 12%, and for those aged 45-64, it was 17%.
• Every year, about 9,000 strokes occur in New Zealand, which leave around 70% of survivors with some form of disability. Around 25% of victims are under 65 years old.

2. It helps pay the bills while you can’t earn. 

• A permanent disability may disrupt your capacity to work, limit your job prospects, and impact your income. 
• Depending on your condition, you may never be able to return to work, or you may need to switch career paths and start over in a new industry. 
• Some conditions may require long-term care and ongoing medications, adding financial pressure on you and your family. 

With TPD insurance, you can use your lump sum benefit to cover your medical costs and household expenses for several months or years. You can also use it to start a business or retrain to switch occupations.

3. It augments publicly-funded benefits.

The government has several programmes and benefits for those who have a disability, including:

• The Accident Compensation Corporation (ACC) for accidents and work-related injuries
• Disability allowances for those with ongoing disability-related costs
• Jobseeker support for those who can’t look for work due to a health condition, injury, or disability.

However, these benefits have specific qualifications and caps and may not be enough to cover your expenses and maintain your family’s lifestyle. For instance, ACC won’t cover illnesses like a heart attack, stroke, or cancer. If an illness leaves you permanently disabled and unable to work, ACC offers no financial support. 

Having disability insurance means you are not reliant on what the New Zealand government can provide. You can use your TPD benefit to cover any financial shortfall, protecting your family from borrowing funds, defaulting on debt repayments, or being pushed into poverty.

4. It can help preserve your savings and assets.

A permanent disability that stops you from working can easily drain life savings and funds you’ve got earmarked for a home deposit, investment, your children’s education, or your and your spouse’s retirement. 

The substantial benefit from your disability insurance can help you cover ongoing expenses without sacrificing your long-term plans and wealth-building goals.

What are the limitations of disability insurance?

1. It’s not designed for temporary periods when you can’t work, even if you have a serious condition.

You need to meet your insurer’s criteria for total or partial permanent disability based on your type of TPD cover (own or any occupation, or modified TPD). 

This means that if you suffer a serious injury or health condition (such as cancer), but can still work or are expected to recover and be able to go back to work, you will not receive a benefit.

TIP: If you want an insurance product that provides benefits if you suffer a critical illness or injury but can still work, consider getting trauma insurance. If you want to be covered for both critical illness and total permanent disability, you can get these plans individually or as accelerated benefits to be deducted from your life insurance benefit. Some trauma insurance plans also allow you to get TPD benefits as optional add-ons.

Contact a Policywise adviser to learn more about options for getting TPD cover, and find out about ongoing insurance promos that can help you get the cover you want at a better price.

2. It does not provide an ongoing income stream.

While a substantial payout can help clear debts or cover immediate medical costs, it may not be enough to replace your income and support you and your dependants for several years. 

TIP: For sustained income replacement during periods of temporary or long-term disability, look into income protection insurance. These plans can provide monthly benefits if you can’t work due to an illness or injury for several months or years, or even until your retirement age.

3. It doesn’t provide a death benefit, which can support your family if you pass away.

Unlike life insurance, disability cover does not provide a lump sum benefit if you pass away. This can be devastating for your family, especially if you are the primary earner and have young dependants and significant financial commitments.

TIP: If you’d like to secure your loved one’s future in case you pass away, consider comparing life insurance plans. You can get life cover as a standalone policy or have your TPD as an accelerated benefit to strengthen and broaden your cover.

RECOMMENDED READINGS

Total permanent disablement (TPD) insurance

Policywise: Your trusted insurance adviser

Policywise is a 100% free service which tells you which health, life, and disability insurance provider best fits your needs. We offer fast, comprehensive, and easy-to-understand comparisons of all leading providers and a simple summary clearly recommending which insurer is best for your situation.

Not all insurance policies are the same. Policywise can help you sort out the duds, avoid the lemons, understand the fine print and exclusions, and get the right insurance for you and your family.

We make the important decision of where to buy your insurance super easy. We’ll answer your questions, provide experienced advice and quotes, and manage all the back and forth throughout the application process. Taking out your cover through us means you'll have our lifetime support and claims advocacy, and we'll help you negotiate a positive outcome at claim time. We can also take care of lodging any claims on your behalf and back you up if the going gets tough.

Check out the reviews on our homepage for how other New Zealanders have found our service because now is the time to get your disability insurance sorted. Give your family or someone you love the most outstanding financial support possible. Book a 5-minute callback with Policywise today; our service is fast and free.