Total and permanent disability insurance isn't a distinct product in the U.S., but being defined as totally and permanently disabled may qualify you for benefits.
Published April 23, 2018|5 min read
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Disability insurance is a type of financial product that replaces your income when you become disabled or ill and can’t work for an extended period of time. There is short-term disability insurance, which covers you up to a span of months, and long-term disability insurance, which is for when your disability lasts for year. Some disability insurance is meant to cover you only if can’t work any job, but it’s also possible to get disability insurance that pays benefits to you even if you can take other work.
In the U.S., there is no distinct disability insurance product called total and permanent disability insurance. Total and permanent disability insurance is simply what they called disability insurance in Australia. Stateside, insurance carriers don’t define disability by its permanence – only whether or not you can still work.
There are instances where being defined as totally and permanently disabled has legal ramifications. For example, to qualify for Social Security disability insurance benefits, you need to prove to the federal government (and specifically the Social Security Administration) that you are totally disabled. Additionally, people with student loan debt may be able to discharge their loan balance if they become totally and permanently disabled.
Disability insurance carriers do make a distinction between a disability that lasts a very long time and one that doesn’t. If you buy a disability insurance policy, it’s possible to add on a residual disability rider that allows you to receive disability benefits if you’re only partially disabled. You may also add on a rider for presumptive disability, for when you incur an injury so extreme that the insurance carrier pays out right away regardless of employment.
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Total and permanent disability insurance is what they call disability insurance in Australia. In the U.S., we just call it disability insurance. Disability insurance is meant to last the duration of the period you can’t work as a result of an injury or illness, which could mean until you reach the age of retirement if you buy a long-term disability insurance policy. Other disability insurance policies, called short-term disability insurance, only last for up to one year (and usually no more than three to six months).
The definition of disability comes down to two types of disability insurance: own-occupation disability insurance, a policy under which you only need to be too disabled to do your original job, but not one that may require less physical exertion; and any-occupation disability insurance, which means you’re unable to do any job. The latter is easier to afford but much harder to claim benefits under, suggesting you need to be almost totally and permanently disabled.
A rider is an add-on to a disability insurance policy that enhances the coverage offered by the base policy. Presumptive total disability benefits are offered as part of a no-cost rider built into most policies and offer disability coverage in the event that you suffer a permanently disfiguring disability such as the loss of your sight, hearing, speech, hands, or feet.
For traditional disability insurance coverage, you’ll have to wait out an elimination period that lasts about 90 days on average to receive long-term disability insurance benefits. But the presumptive total disability rider has no waiting period and pays out the full benefit regardless of your employment. You can go blind and still receive benefits even if you could do your old job.
Disability insurance in the U.S. is defined only by your ability or lack thereof to continue working, but while that does not suggest total and permanent disability, it still comes pretty close. If you don’t meet your disability insurance company’s definition of disability, but still get seriously injured, you’ll want your policy to have a partial disability rider.
The partial (or “residual”) disability rider helps keep you financially solvent if your ability to work is reduced but not entirely removed. If you have the residual disability rider, carriers measure your eligibility to claim benefits as a percentage of one of the following categories:
Loss of duties – If you can’t perform more than 20% of your duties at work.
Loss of time – If you can’t perform your duties for more than 75% to 80% of the time you previously spent doing them.
Loss of income – If you lose more than 15% to 20% of your income because of the disability.
Disability insurance is meant to replace your income when you become disabled.
Having a total and permanent disability means you may discharge your remaining federal student loan balance. You have to apply for total and permanent disability (TPD) discharge through the U.S. Department of Education, and TPD discharge includes relief from the following federal financial obligations:
William D. Ford Federal Direct Loan (Direct Loan),
Federal Family Education Loan (FFEL), and/or
Federal Perkins Loan (Perkins Loan), or
Teacher Education Assistance for College and Higher Education (TEACH) Grant service obligation
To be eligible for student loan discharge due to total and permanent disability, you have to meet one of the following qualifications:
A physician determines that you’re unable to complete “substantial gainful activity” because of an injury or illness for a period that has lasted or will last at least 60 months, or which could result in your death.
The Department of Veterans Affairs declares you unable to work due to a disability incurred as part of your military service;
The Social Security Administration determines that you’re unable to complete “substantial gainful activity,” which also qualifies you for Social Security disability insurance and associated benefits (see below);
Once you have the right documentation, you have to forward it to Nelnet, the government’s TPD servicer, which can be done over email or online. Nelnet will alert your loan servicers and ask them to suspend collection for 120 days, during which time you submit the official application. How you get approved or denied depends on what qualifications you used to apply.
Social Security disability insurance (SSDI) is a government-run program that pays you benefits if you can prove that you are totally and permanently disabled. We don’t recommend relying on this type of disability insurance because the benefits are small and it’s very difficult to get approved for them.
To get approved for SSDI benefits, you have to show that your injury or illness is so debilitating that you can’t work at your current occupation and can’t adjust to other types of work. That means you’ll get rejected for SSDI benefits even if you have to take a massive pay cut to work a less physically exhausting job.
Long-term disability insurance policies that offer coverage for years at a time may be your best bet. Not only do you not have to prove yourself to be totally and permanently disabled to get benefits; you’ll also enjoy a much larger payout during the benefits period.