Is Disability Insurance redundant now with the introduction of the NDIS?

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Welcome to Finance and Fury, the Say What Wednesday Edition

This week’s question comes from John. Hey Louis, Really enjoying your latest episodes, thanks again for the great content.

I saw recently there was a question raised around superannuation reform that TPD insurance within a superfund my now be unnecessary as funding is available under the NDIS for people who are, or become disabled, and therefore might be unethical for super funds to be selling this insurance (assuming it is indeed unnecessary).

My question to you is, generally speaking of course, should i be paying for TPD insurance through my superfund, or will I be adequately covered under the NDIS if I suffer an injury that leaves me disabled and unable to work?

First off:

  • What is the NDIS? And How is it different to TPD insurance?
  • What are the issues with relying on the NDIS?

What is the NDIS?

  • In 2016, the National Disability Insurance Scheme (NDIS) started
  • It is a system to provide support to those with disability
  • It is not replacing a disability support pension
  • It is additional funding to support specific needs or “reasonable necessary supports”
  • There is an eligibility to receive the NDIS support
  • The average individual allocation to date has been around $39,600 per year
  • The payment must not include any day-to-day living cost not related to your disability support needs
  • It should take into account other support payments

What is the real issue?

  • You have to reach a level of disability and you only receive funding for costs in relation to that disability
  • It becomes income and asset tested, which will change your disability support pension payments
  • TPD insurance – depending on the definition, pays around your eligibility to work or not
    1. Types of TPD insurance link
    2. ADL – Feed self, cloth self, mobility, toilet, shower – Probably close to NDIS definitions
    3. Any – Any occupation you are trained for
    4. Own occupation – Specialised occupation generally
  • If you meet a definition of disability, TPD would be easier to claim on

Scenario: Married couple – Both working full-time for $80,000 p.a. each – 2 kids aged 13 & 14 and a mortgage of $550,000

  • NDIS and DSP
    • DSP - $698.10 FN maximum payment but asset/income tested
      • Reduction after $304 FN by 50c per dollar – Remaining partner earns $80,000 = $3,076FN = $0 DSP
    • Left with NDIS – and it will cover costs of disability
  • TPD and IP (owned personally)
    • You would receive a lump sum payment with TPD to pay off mortgages or cover lump sum costs
    • Income Protection (if owned personally) would pay you up until the benefit period for the whole time you were disabled (which can be nominated on policies up to the age of 65 to 70)
      • IP of $60k (at 75%) – lower but no mortgage now
      • If Income Protection is owned in superannuation however, it wouldn’t provide the same double up of benefits
    • This allows you to fully protect your finances and to maintain a certain lifestyle if you were disabled and unable to work
  • The best forms of protection against disability is a combination of TPD cover and Income Protection Covers

What is the longevity of the NDIS?

  • Not all Australians considered disable will receive the NDIS
  • This program might become unaffordable for the government
  • The productivity commission has updated its estimates on people helped and the cost
  • Into the future, the program is estimated to cost 1.3% of the GDP in 2044/45 – whereas it currently costs 0.12% of GDP

Summary:

  • Probably not the best idea to rely on it
  • You would need to find another form of income to cover living expenses

If you want to get in contact, you can do so here.

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