Scenario OneScenario One
The Classic TPD Case
Jim was involved in a motor vehicle
accident and injured his right arm and
The arm was fractured in the accident
and the damage is permanent.
Reduced mobility due to permanent
damage to his leg also affects his ability
to ever work as a mechanic again.
Scenario TwoScenario Two
Dina, aged 22. Starting a career as a
company sales-person. Excited about
getting her first new car – a company car!
Married, with a young child, and a
working partner – but many expenses
and the dream of owning a home.
Diagnosed as having Multiple Sclerosis
(MS) when she began feeling extremely
Scenario ThreeScenario Three
Stroke at age 61 meant that she would
never work again.
Expected to die, but survived, and
various home alterations were required.
In fact the family moved, and built a new
house, in order to support her better.
How Likely is TPD?How Likely is TPD?
Will Anyone Ever Claim?
AMP data says you are 50% more likely
to suffer TPD during working life than to
QPR data from Peter Davies is based on
a different methodology but estimates the
risk of TPD for one person out of a
couple at 9% between age 18 and 65
Only 19% of working age New
Zealanders with children have TPD cover
Many more buy lotto tickets
How Much Should I Buy? Pt 1How Much Should I Buy? Pt 1
What is the right measure?
To preserve consumption at greater than
80% of pre-disability the FSC reckon
there is a shortfall of $350 billion
Households with a non-working adult are
particularly at risk – the non-working
partner is often underinsured because of
models based on “income.”
Typically a family needed to insure the
primary income earner with $320,000 of
TPD. (FSC data).
How Much Should I Buy? Pt 2How Much Should I Buy? Pt 2
How Long Must the Money Last?
Of course, after a TPD life expectancy
declines. We don’t have a general figure,
but for spinal cord injuries the results
For those whose injury occurred after age
40, 25% will die within 18 months of the
For a 45-year old, life expectancy
thereafter was 78% of what might
otherwise have been expected
Whatever we think of that number, let’s
put it to one side right now – and return to
it in a couple of minutes.
How Much Did They Buy?How Much Did They Buy?
Use and Sums Insured are Low
Assuming a family was part of the
estimated 19% that own TPD cover, what
did they buy?
Families with primary school children,
according to FSC data, bought around
$190,000 of TPD – when they had the
cover at all.
Families with teenage kids were even
worse, with cover of about $100,000.
TPD Recent HistoryTPD Recent History
30 years ago – much more common as a
rider on life than it is today.
20 years ago – shift to own occupations
5 years ago – addition of partial benefits
becoming much more common.
Problems With TPDProblems With TPD
A Lack of Trust
Australian experience – increasing claims
for mental health as a cause of TPD
Doubt and confusion - especially with
income protection. The Association of
British Insurers found that 55% of TPD
claims in 2009 were declined, mainly for
In NZ in 2009 there was TPD premium of
a little under $40million, and claims of a
little under $17million
Perception of duplication: either with ACC
or with parts of Trauma and Income
The Place of TPD in the Risk PlanThe Place of TPD in the Risk Plan
Your Turn to Work It Out!
Jack and Mabel – how much TPD should
a)If they have no income protection
b)If they have income protection
Hand outs are going around. Please
assume they have life and trauma cover.
TPD Rating Issues Pt 2TPD Rating Issues Pt 2
Main Benefit Variations
•Do not use most recent own occupation if not in employment for 12 months
•Must not work in any occupation for first 3 months
•No cognitive-based criterion
•Not paid in the last three or six months of the policy
•Penalty for not waiving the 3 month wait for at least 10 conditions
•Requirement to first manifest after policy starts
•Six month wait
TPD Rating Issues Pt 3TPD Rating Issues Pt 3
Partial Benefit Variations
•Three banks and one direct insurer have no partial benefit
•Three companies exclude class four lives
•Two companies limit payment to 10% of the sum insured
•The others will pay 25% of the sum insured
Just Buy It!
TPD is valuable cover, increasingly
likely to pay out, not less likely
•partial payments have made it far more
•social changes may make claims even
General strategy: cover many
contingencies for lower amounts when
confronted with a budget limit
Planning mix: over to you, but please
have a strategy
So, What Next?So, What Next?
Playing with Risk
Understanding risks in groups - we have
talked about TPD for individuals, but in
each of the scenarios we gave a
company lost a valuable person.
Reminder: – to qualify for your education
credits you need to answer some
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