The Next Big Change in TPD Insurance Has Begun
The Next Big Change in TPD Insurance Has Begun
It’s Happening
Australia’s life insurance industry is shifting again, and this time, it’s Total and Permanent Disability (TPD) insurance that’s under pressure.
For years, TPD cover has provided a safety net for Australians who can no longer work due to illness, injury, or trauma. But as mental health claims surge, insurers are rethinking what that safety net looks like and the changes now rolling out could leave many Australians dangerously underinsured.
At Newcastle Advisors, we’ve been warning clients this moment was coming. First it was Income Protection. Now it’s TPD.
From “Unsustainable” to Unavailable
When insurers began losing money on income protection policies, they called it “unsustainable.”
Their underwriting processes weren’t tight enough, claims were increasing, and payouts exceeded what they had priced for. So they turned to the government for help, rewriting the rules to make policies harder to claim on and easier to cancel.
Now, we’re seeing the same playbook unfold with TPD insurance.
According to new data from the Council of Australian Life Insurers (CALI) and KPMG, mental health is now the leading cause of TPD claims in Australia, making up almost one in three of all claims paid.
The numbers are confronting:
Mental health TPD claims among Australians in their 30s have risen by 732% in the past decade.
Insurers paid out $2.2 billion in mental health-related claims in 2024 almost double the amount from five years ago.
Mental health is also driving one in five income protection claims, totalling $887 million last year alone.
It’s clear the industry is under pressure but the question is, who bears the cost?
The Human Cost Behind the Statistics
Every statistic represents a person whose life has changed forever.
At Newcastle Advisors, we’ve supported Australians who’ve faced unimaginable trauma:
Family members who’ve witnessed violent crimes or lost loved ones to murder.
First responders who’ve developed PTSD after years of service.
Survivors of sexual assault and workplace violence.
Everyday Australians whose lives were upended by medical trauma or devastating accidents.
For many of these people, their TPD claim was their last lifeline the only way to rebuild financial stability when returning to work wasn’t possible.
But under the new wave of product designs being released, many of these same clients would no longer qualify for a payout.
The “New” TPD Cover – Cheaper on Paper, Tougher in Practice
The first insurer has now launched what it calls a “new, flexible, and affordable” form of TPD cover.
But look closely at the fine print, and the reality is far less reassuring.
This version of TPD uses medical impairment scales such as the Whole Person Impairment (WPI) and Psychiatric Impairment Rating Scale (PIRS) to assess claims.
To qualify, a claimant must have:
30% or greater WPI, or
Greater than 30% PIRS rating.
In other words, if you experience mental illness, trauma, or psychological injury that doesn’t meet these thresholds, no matter how much it impacts your ability to work or live a normal life, you may not be eligible for a payout.
The system is shifting from empathy and context to numbers and percentages.
A “Sustainable” System — But For Who?
Insurers are calling this evolution necessary “backed by medicine, built for fairness.”
But let’s be clear: the main objective is not fairness. It’s financial sustainability.
As insurers look to “balance their books,” they’ll continue to:
Increase premiums on existing TPD cover,
Tighten definitions and claim requirements, and
Push Australians toward these new, harder-to-claim policies.
The result?
Those who need support most particularly Australians suffering from complex trauma, PTSD, depression, or anxiety, will find it increasingly difficult to claim at all.
This is a devastating shift for vulnerable Australians who’ve already faced enough.
The System Wasn’t Built for Modern Mental Health
The problem isn’t just rising claim numbers — it’s outdated definitions.
Traditional TPD insurance was designed around physical disabilities injuries, illnesses, and conditions that could be clearly measured.
But mental health doesn’t follow a straight line. Recovery is often episodic, unpredictable, and deeply personal.
Assessing permanency under old frameworks simply doesn’t fit the modern reality of mental illness.
TAL’s General Manager of Claims Risk & Governance, Daniel Sayegh, acknowledged this recently, noting that claims for psychological injury “don’t follow a straight line” and are far more complex to assess.
Unfortunately, the industry’s answer so far has been to limit cover, not improve it.
Why This Matters Now
This shift isn’t just a technical change buried in policy documents, it affects millions of Australians who believe they’re covered through their superannuation or personal insurance.
Most people don’t realise that TPD inside their super could be quietly changing underneath them.
If you haven’t reviewed your policy in recent years, you may no longer have the same level of protection you once did.
Once these “new” TPD policies become the industry standard, the option to secure comprehensive cover under the current definitions may disappear altogether.
What You Can Do
Review your existing cover.
Understand what you’re covered for and what you’re not.Seek advice early.
If you’ve had any mental health concerns, trauma, or periods off work, talk to an adviser before applying for new cover. The timing and disclosure strategy can make all the difference.Don’t cancel old cover without advice.
Older TPD policies are generally far more generous and may be irreplaceable once surrendered.Be proactive.
If you or someone you love is struggling with mental health or trauma, don’t wait until it becomes a claim. Speak with your financial adviser about how to protect your position and plan for recovery.
Our Role at Newcastle Advisors
We’ve been helping Australians navigate complex TPD and trauma claims for years.
We’ve seen the best and worst of the system the compassion of some claims teams, and the stonewalling of others.
Our role is to make sure clients understand their rights, their options, and their strategy before it’s too late.
Because at the end of the day, this isn’t about insurance companies. It’s about people.
Australia is at a tipping point.
Mental health is not just a medical issue, it’s a financial one.
And while insurers look to protect their balance sheets, the people they’re meant to protect are being left behind.
If you have TPD insurance especially through your super now is the time to act.
Before definitions change.
Before premiums spike.
Before you lose the cover that could one day save your family’s financial future.