Coping Financially After a Sudden Disability

When life throws you a curveball and you suddenly can’t work, the financial pressure can feel overwhelming. But here’s something many Australians don’t realise: there can be many safety nets to help you through.

Let me share Sarah’s story—it’s one I see far too often in my practice, but with the right guidance, it had a positive outcome.

Sarah’s Story: When Everything Changed

At 38, Sarah was thriving—teaching full-time, raising two kids, and settling into her first home in Adelaide. Then a car accident left her with a severe spinal injury. The doctors were clear: she wouldn’t be returning to work. With 5.5 million Australians (21.4%) living with disability, this financial shock is more common than you’d think.

Your Immediate Income Sources

Use Your Leave Entitlements First

Sarah’s first lifeline was something she’d built up over years: her leave entitlements. She had four weeks of annual leave, two weeks of sick leave, and three months of long-service leave accrued. While these don’t last forever, they kept her full salary flowing for the critical first few months, buying time to sort out longer-term solutions.

WorkCover: If Your Injury Was Work-Related

Since Sarah’s accident happened during her commute, we explored WorkCover. In Australia, workers’ compensation (managed by state schemes like WorkCover, WorkSafe, or iCare) covers work-related injuries and commute accidents. It provides wage replacement and medical expenses quickly, regardless of whether your disability is permanent or temporary.

Income Protection: Your Fastest Insurance Option

Here’s what most people miss: Income Protection insurance pays out much faster than TPD. Sarah had it through her super with a 60-day waiting period. After two months, she received $3,800 monthly (75% of her income). This bridged the gap while her TPD claim was processed—Income Protection provides monthly benefits for up to two years.

Disability Insurance: The Long-Term Solution

Total and Permanent Disability (TPD) insurance—which many employed Australians may have automatically through their super—provides a lump-sum payment if you can never return to your usual occupation. As of December 2025, payouts typically range from $60,000-$500,000. Sarah’s was $320,000, although it took six months to process while doctors confirmed she would never be able to return to work again. That’s why layering your income sources matters.

It’s important to understand, that like any other insurance, a TPD policy only covers you if it was active when you are injured. Under the 2020 PMIF reforms, insurance can become inactive without employer contributions.

Immediate Steps to Take

• Check your leave balances. Use sick leave, annual leave, and long service leave to initially maintain income.
• Report work-related injuries immediately. If injured at work or commuting, notify your employer within 48 hours to protect your WorkCover rights.
• Contact your super fund. Check both Income Protection and TPD cover. Income Protection pays faster, but TPD provides a lump sum.
• Gather medical documentation. Start collecting reports and specialist assessments immediately.
• Apply for Centrelink. The Disability Support Pension provides $1,149 per fortnight for singles as a safety net.
• Contact your lender. Many have hardship provisions. Sarah’s bank gave her a three-month repayment holiday.
• Check for multiple policies. Changed jobs? You might have old super accounts with cover. Our client, Sarah, found an extra $85,000 in an old superfund she completely forgot about.

Long-Term Planning

Once you’ve accessed your TPD lump sum, think strategically. Sarah’s three-bucket approach worked well: $50,000 in emergency savings, $100,000 off the mortgage (reducing repayments by $800 monthly), and $170,000 invested for regular income.

Tax Considerations

TPD insurance premiums are generally not tax deductible – and any payouts for claims are tax-free if owned and paid for personally. 

However there are tax implications if the policy was owned and paid for out of your super, depending on your age at time of payment of the claim:

• Over 60:  the entire amount is tax free
• Under 60yo: taxed proportionally to the components of your super account:
  • Tax-free component: tax free
  • Taxable component: taxed at 22% with a tax-free uplift to reduce the effective rate to a max of 18%

Income protection payouts are taxed like normal income, but the premiums for the policy are generally tax deductible to the owner of the policy.

Don’t Forget NDIS Support

The NDIS supports over 500,000 Australians with disability-related costs like assistive technology and home modifications. This is separate from income replacement—it funds supports you need. Sarah’s NDIS package covered home modifications and therapy, protecting her TPD payout for financial security.

The Bottom Line

Sudden disability is devastating, but you have layers of protection: leave entitlements, WorkCover (if work-related), Income Protection, TPD insurance, Centrelink, and the NDIS. The key is knowing they exist and acting fast.

Sarah’s story ended positively because she got the right advice early. Two years on, she’s financially stable and focusing on health and family without financial stress added.

The information provided in this article is general in nature only and does not constitute personal financial advice.