Trauma CoverYour Guide to Trauma Insurance

How would you cope financially if you were diagnosed with cancer or suffered a heart attack? These kinds of traumatic events can come out of the blue, and they can hit your bank account hard.

Trauma can deplete a family’s savings quickly, adding more stress to an already stressful situation. This guide will explain what trauma cover is, how to tell if you need it, and how it can help.

Trauma Insurance: The Basics

Trauma cover goes by a few different names: trauma, critical illness, major illness, and recovery insurance. No matter what you call it, we’re usually talking about the same thing—a type of life insurance that pays out a lump sum if you are diagnosed with a serious illness or suffer a serious injury.

If you experience a serious illness or injury, it often means that you will be unable to work for some time. Even if you have stockpiled weeks of sick leave, it isn’t always enough to see you through treatment and recovery.

The lump sum payment from trauma insurance can be used where you need it most. For example, for medical costs, recovery costs, or to pay your regular bills on time. Trauma cover relieves the stress of worrying about money when what you should be doing is getting better.

There are other types of insurance that complement trauma insurance; we’ll look at those in more detail later on.


What Does Trauma Insurance Cover?

Insurers are free to set their own definition of trauma, so not all policies will cover exactly the same thing. It’s worth comparing trauma cover to find one that offers the level of coverage you’re looking for at a price within your budget.

However, most insurers will cover a similar range of conditions. For starters, there are four conditions that consistently make up the top four trauma claims:

  • Cancer
  • Coronary Bypass Surgery
  • Heart Attack
  • Stroke

Your policy will likely also cover the following, at least to some extent:

  • Severe injury caused by an accident
  • Major organ transplant
  • Loss of limbs or sight
  • Head trauma
  • Paralysis
  • Severe burns
  • Parkinson’s disease
  • Dementia

This list is not conclusive; many policies cover as many as 40 traumatic conditions or more.

Traumatic Events in Australia
An estimated 138,321 cases of cancer will be diagnosed in Australia in 2018.
In 2017, there were 12,055 serious injuries due to road accidents in NSW alone.
Cardiovascular disease affects more than 3.7 million Australians.

More than 1 in 3 Australians personally know someone who has suffered a heart attack.



Defining Trauma

You can find an insurer’s definition of trauma in a policy’s Product Disclosure Statement (PDS). This is also known as the fine print; that stuff we don’t want to bother reading but really should.

The PDS lays out exactly what conditions are covered, and how those conditions are defined. It typically also explains if the condition qualifies for a full or partial trauma benefit. Some insurers offer different levels of trauma cover, so be sure to read the details that apply to your policy.

Full Trauma Benefit

If you experience an illness or injury that is covered by your trauma cover, your insurer pays out the full sum. This effectively ends your trauma cover, as the funds have been paid out. If you wish to insure yourself further, you will need to take out a new policy.

Partial Trauma Benefit

Some traumatic events don’t fall under the definition of full trauma cover, but they are covered by a partial trauma benefit. If you experience a condition that is defined under your policy’s partial trauma benefit, you’ll receive a predetermined portion of the full sum insured.

This portion is subtracted from the total sum insured. If you are later diagnosed with an illness or injury that is covered by the full benefit, you’ll receive the remainder of the total sum insured. This is paid out less the sum you previously received.


Who Needs Trauma Cover?

Not sure if you need trauma cover? Start by looking at your finances and your insurance situation.

Personal Finances

Imagine that your income stopped coming in for the next month. Would you have enough to pay your family’s regular expenses? What if that income disappeared for three months?

Some households have sufficient savings to manage a temporary income hit, but many would find themselves in serious financial trouble. If you suffer an illness or injury, it’s not just your income that is lost. You’ll likely face additional expenses, from medical fees to the costs associated with recovery.

If the loss of income would present a problem for your family, you may also want to consider income protection insurance. However, remember that this only applies if you are unable to work; not if you are receiving treatment but still physically capable of working.

Health Insurance

Consider your level of private health insurance. If you have comprehensive health cover, you may be able to get away with a lower level of trauma insurance. However, if you are relying on Medicare, you might need more trauma cover, particularly for any costs that are incurred out of hospital.

Life Insurance

Trauma insurance is part of the life insurance family. There are several types of cover that can cater to different situations, and they work well together. If you already hold TPD or income protection insurance, you may not need as much trauma cover.

Don’t forget to check any life insurance you may have through your superannuation fund; many people have some level of cover and don’t even realise it. However, super funds cannot offer trauma cover to new members as of July 2014, so you will need to purchase it outside of your super.


Trauma Insurance: Making a Claim

Transparency is critical when applying for life cover. If your insurer requests information about your medical history, you should provide it in full. The same goes for any diagnoses or injuries that occur after you apply.

If you don’t keep your insurer up to speed on your health, they could refuse a future claim.

If you do need to make a claim, you’ll need to show your insurer evidence of the diagnosis. Follow your insurer’s instructions for making a claim, which should be found in your policy’s PDS.


Trauma Cover vs. Other Types of Life Cover

Thinking about trauma cover? It helps to know what your options are.

Types of Life Insurance
Life Cover
If you die or become terminally ill, your beneficiaries receive a lump sum payment. Your loved ones can use the funds to cover debts or living expenses.
Income Protection Cover
A monthly payment of up to 75% of your income paid out while you are temporarily unable to work due to an accident or illness. Maximum limits apply and payout is related to whether or not you are able to work, not a diagnosis.
Total and Permanent Disability Cover
Lump sum payment if you are totally and permanently disabled following an injury or illness, and are unable to return to work at all.
Trauma Cover
Lump sum payment following diagnosis of a serious illness or injury that you will hopefully recover from.

Comparing Trauma Cover

As with any type of insurance, shopping around is a smart way to score a competitive deal on a policy. However, don’t fall into the trap of looking solely at the cost of premiums.

Compare the cost of trauma insurance but also consider what’s covered by the policy, an insurer’s reputation, and the premium structure.

There are two types of premium structures for life insurance: stepped and level. Both premiums tend to go up at the rate of inflation, but there are other factors at play.

Stepped premiums

Stepped premiums are based on how old you are when you purchase your cover. Expect your premiums to increase with age, as your risk increases.

Level premiums are based on an average over time, to reflect your risk across a number of years. These premiums should stay largely the same, unless you adjust your level of coverage.

Trauma insurance can provide peace of mind for you and your family. Being diagnosed with an illness or injury can be traumatic in itself, as your family grapples with the question of what to do next.

With trauma insurance, you won’t have to worry about where the money is coming from, so you can focus on getting better and spending time with the people you love.

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