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Total and permanent disability: What it means in the world of insurance

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Disability is a term that can mean many things. If you’ve ever researched or applied for long-term disability insurance, you know that how policies determine your eligibility for benefits also varies.

One of the definitions you may encounter is total and permanent disability (TPD). This definition is not only important for insurance benefit purposes, but it's also an important distinction for other reasons.

Total permanent disability can also be defined in several ways, but it generally applies to a condition that prevents or is expected to prevent a person from working ever again in the same capacity they did before being hurt. It often refers to the loss of limbs, loss of sight or hearing, or permanent mental incapacitation.

What is total and permanent disability insurance?

Some countries have private coverage available marketed as total and permanent disability insurance. Insurers in Australia, for example, offer TPD insurance that provides a lump sum benefit in the event of a medically diagnosed event that renders the claimant unable to ever work again. The benefit is designed to cover medical costs as well as provide some level of financial security.

Insurers in the U.S. don’t sell TPD insurance like they do in Australia. The closest example is long-term disability (LTD) insurance. LTD provides a monthly benefit designed to replace your income if a covered injury or illness limits your ability to work. LTD insurance covers serious ailments that may last several months or years, as well as permanent disabilities.

If you have a TPD, you should receive the full benefits as stated in your policy. The benefit period you elected on your LTD policy will determine how long you receive benefits. For example, if you purchased a 5-year benefit period, you will receive policy benefits for a maximum of five years regardless of whether your condition is a total and permanent disability.

Get a personalized quote for long term disability insurance with Breeze.

Alternatives to total and permanent disability insurance

In addition to a standard LTD policy, there are a few alternatives to TPD insurance for workers in the United States.

You could qualify for Social Security Disability Insurance (SSDI)

This is a federal, payroll-tax-funded program managed by the Social Security Administration. Although benefits can partially help a person recovering from disability, Social Security should not be fully depended on to provide needed benefits. Social Security has a strict definition of disability: If you can still work and earn more than $1,220 a month, you generally cannot be considered disabled by SSDI standards. Also, the typical monthly benefit is far less than what most people need to live on.

Learn More: Social Security Disability Insurance

You could buy a long-term disability policy with a presumptive benefit

If you suffer one of the following conditions as a result of an injury or illness, you will not be subjected to your policy’s waiting period or the requirement for a medical exam to prove you’re still disabled:

  • Loss of sight in both eyes
  • Complete loss of hearing
  • Loss of speech
  • Loss of the use of your hands
  • Loss of the use of your feet
  • Loss of limb

You could buy a long-term disability policy with a catastrophic disability rider

This rider provides additional funds, above your normal disability policy benefits, in the event that you become catastrophically disabled. This optional benefit is designed to help pay for the care needed as a result of your disabling injury or illness.

A catastrophic disability can be defined in one of the following ways:

  • You suffer a complete loss of at least one of these senses: speech; hearing in both ears; sight in both eyes; or use of both hands, both feet, or one hand and one foot.
  • Your condition prevents you from performing at least two of the six activities of daily living (ADL) without assistance: bathing, dressing, eating, using the restroom, continence, and transferring.
  • You have severe cognitive impairment as measured by accepted medical tests.

You could buy critical illness insurance

Critical illness insurance (CII) is a type of supplemental insurance that pays a lump sum benefit if you are diagnosed with a covered illness, such as a heart attack, stroke, cancer, or other serious condition.

With CII, the illness or injury does not have to cause permanent disability to qualify for a benefit. However, the seriousness of your condition may determine whether you collect a benefit or how much. The more serious your prognosis, the more likely you are to receive a full benefit from the policy. Critical illness insurance policies also pay partial benefits for less serious conditions. And you may not receive benefits at all if the condition is easily treated, such as a cancer diagnosis that was detected early.


You could buy accidental death and dismemberment (AD&D) insurance

This type of policy provides coverage if an insured is the victim of an accident that causes death, dismemberment, or serious disability. It also offers a benefit for a serious injury caused by an accident that results in the loss of a limb or finger, the loss of eyesight, hearing or speech, or paralysis.

Learn More: Accidental Death & Dismemberment Insurance

Student loan disability discharge

Where a TPD diagnosis has perhaps the most impact is on people who have federal student loans to repay.

That’s because a TPD discharge relieves you from having to repay a William D. Ford Federal Direct Loan, a Federal Family Education Loan, or a Federal Perkins Loan. It also discharges you from the service obligation tied to receiving a TEACH Grant.

Applying for a TPD discharge requires the completion of an application showing that you meet the qualifications. This includes supporting documentation from either Social Security, the Veterans Administration, or your physician.

If using a physician, that doctor will have to certify that you are unable to “engage in any substantial gainful activity due to a physical or mental impairment” that can be described in one or more of the following manners:

  • It may result in death
  • It has lasted for at least 60 continuous months
  • It can be expected to last for at least 60 continuous months

According to the Federal Student Aid Office, substantial gainful activity is “a level of work performed for pay or profit that involves doing significant physical or mental activities, or a combination of both.”

The physician who certifies your TPD discharge application must be a doctor of medicine (M.D.) or osteopathy (D.O.) and be licensed to practice in the U.S.

If you want to be as covered as possible for a total and permanent disability, you should have a long-term disability policy that pays a benefit to age 65 (or 67 if that is available). In addition, you may want to supplement your LTD policy with a catastrophic disability rider and/or a supplemental insurance plan such as critical illness or accidental death and dismemberment insurance.

The information and content provided herein is for educational purposes only, and should not be considered legal, tax, investment, or financial advice, recommendation, or endorsement. Breeze does not guarantee the accuracy, completeness, reliability or usefulness of any testimonials, opinions, advice, product or service offers, or other information provided here by third parties. Individuals are encouraged to seek advice from their own tax or legal counsel.

— Published September 1, 2021
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