Total and permanent disability insurance – How does it work?

6 min Read Published: 11 Mar 2021

Total and permanent disability - How does it work?Within the context of life insurance and critical illness insurances, you may come across total and permanent disability insurance. In fact, the definition focuses on paying claims to people who can't continue to fulfil occupational or daily living functions. This means that it extends to mental and physical incapacity. Although there are relatively few claims made in this area, it is worthwhile understanding how it can enhance your serious illness insurance.

How does total and permanent disability benefit work?

Total and permanent disability benefit is almost always bought with critical illness insurance. In fact, most insurers include it with critical illness insurance but a few insurers may offer this benefit as an optional extra, at an added cost. Any claim for total and permanent disability has to satisfy the insurance company's specific definition.

These are very specific in nature to avoid any ambiguity if you make a claim. The definition usually ties into your occupation but can also be linked to your daily life. There are four main categories for the definition and the policyholder is assigned one of these at the outset.

Definitions of total and permanent disability

Total & Permanent Disability Definition Claim is paid if you are permanently and irreversibly unable to:
Own Occupation
  • Do your own job
Suited Occupation
  • Do a job that you are suited to through experience or education
Any Occupation
  • Do any job
Activities of daily living
  • Perform some basic essential functions of daily life

NB: Definitions may vary between insurers and the wording may be very slightly different to the above.

Claiming against total and permanent disability insurance?

It is important to remember that total and permanent disability is one of a number of critical illnesses (usually upwards of 35). This context is important because the vast majority of claims against critical illness insurances are for heart attacks, strokes and cancers which will not be tested against your ability to work or perform functions of daily life. They merely depend on a clinical diagnosis that meets the definition of the relevant illness.

The definition of total and permanent disability allocated to you when you buy your insurance depends on your occupation. It can seem like the best definition would be one that protected you in the event that you could not continue to do your own job. However, this definition is usually offered to people who have very low-risk occupations - generally, those who work at a desk and are not required to perform any manual duties. For someone in this position, it would be much more difficult to show that they were permanently and irreversibly unable to do their job. So, the definition would be harder to meet. On the other hand, someone who is very reliant on their physical ability to do their job is unlikely to be offered this definition.

The insurance companies tend to look at your occupation to work out:

  • How much manual work you do as a percentage of your day
  • What type of environment you work in
  • Any specific and key functions you carry out

If your occupation relies on your ability to carry out manual work, you are unlikely to be protected for your ability to do your own job. The actual amount and the nature of manual work that you do will determine whether you find yourself with a suited or any occupation definition as described in the table above. Your environment will also have an impact (i.e you may have an increased risk of injury due to working at heights or in hazardous environments).

When considering the likelihood of a successful claim, it is worth noting that it is common for claims to be declined for total and permanent disability due to the extreme definitions that have to be met for a payout. This happens across all definitions of the benefit. 63 complaints were received by the financial ombudsman service for rejected total and permanent disability claims between 2019 and 2021. 17 were upheld. (Source: www.financial-ombudsman.org.uk)

There is a lack of understanding around what constitutes a valid claim when using this product. Policyholders believe that they will receive a payout if they can't work anymore. What can be overlooked is, how difficult it is to prove this to be permanent and irreversible. Many doctors struggle to provide evidence to support their patient's claims as they cannot verify this. In these instances claims are declined.

It is worth ensuring that you have received the best definition around this benefit but given the low incidence of successful claims, I would suggest that it is far more important to look at sick pay insurance to prevent financial hardship in situations where you are incapacitated to work. You can read more about this type of insurance in our article "A guide to sick pay insurance"

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