Life Insurances

GUIDE: What Does Trauma Insurance (or Critical Illness) Cover?

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We have all heard about the importance of trauma / critical illness protection but what does trauma insurance actually cover?

confused-about-life-insurance

What Does Trauma / Critical Illness Insurance Cover?

Trauma insurance pays a one-off lump sum (insured amount) if you have a serious medical condition (like cancer, heart attack, stroke or an accident).

In order for the policy to be triggered you must suffer from one of the medical conditions disclosed in the insurers policy document.

Look at the Claim Statistics

To get an idea of what trauma / critical illness insurance covers, it is useful to look at some actual claim statistics from the insurer TAL:

CHART: Trauma Claims by Type in 2014

trauma-insurance-claims-statistics-tal-2014

* 2014 TAL claims statistics

As you can see the vast majority of claims were cancer related

Let’s Take a Closer Look 

To find out exactly what your policy covers you need to review the product disclosure statement, which outlines all the terms and conditions for your trauma / critical illness policy.

In this blog we will examine a TAL critical illness insurance policy as outlined in the PDS pictured below:

tal-income-protection-insurance-pds-1-july-2016

Trauma insurance is not tax deductible, but this means any payout is usually made tax free

Conditions Covered by Trauma Insurance

Unfortunately there is no one size fits all trauma / critical illness insurance policy.

Insurance companies are in business to make a profit, so they have developed a range of products with different bells and whistles in the hope of attracting new customers.

In the disclosure document we can see that TAL is offering cover on the following medical conditions:

tal-trauma-critical-illness-cover-conditions

Why Have Trauma Insurance?

Trauma insurance is a lump sum payment that is designed to help you focus on recovery without having to worry about your finances.

Trauma insurance will certainly help pay for the costs that aren’t covered by health insurance, such as the best medical treatment, carers, rehabilitation and lost income.

For example the lifetime financial cost of cancer is estimated at $100,000 per person.

Video: Real Life Stories

I have Income Protection Do I Need Trauma as Well?

The survival rates and treatment options of many critical illnesses are such that you often won’t trigger the terms for a income protection payout.

For example many cancer suffers have to continue to work in their normal jobs while they undergo chemotherapy treatment in order to ensure they still have an income.

I don’t know about you but I would rather get a lump sum trauma payout and then focus on getting better, without having the pressure of working as well.

Some Cancer Facts:

cancer-facts

Not Just for Old People

Here is a selection of trauma claims Zurich insurance paid out in 2014 according to the age of the claimant:

insurance-it-can-happen

Insurance is something we pay for but hope we never need to use

1Premium Type:

When it comes to the trauma insurance premium there are two options:

  1. Stepped premium – one that will rise every year, with your age and risk level.
  2. Level premium – one that will remain constant.

Here is the catch; under a level premium you will generally pay a higher premium for the first few years, when compared to the same policy on a stepped premium.

Stepped vs Level

2Expiry Age

As long as you continue paying the annual premium, a trauma insurance policy can last up to 70 years of age.

3Who Can Own the Cover?

Trauma insurance is best held in your personal name and cannot be held through a super fund due to restrictions in accessing potential payouts.

Optional Benefits

Most insurance companies will offer optional benefits with the trauma policy.

For example you may choose the reinstatment option if you are concerned that you may need to claim on this policy more than once, or the child’s critical illness option if you want to cover your children as well.

tal-trauma-critical-illness-cover-optional-benefits

Summary

  • Trauma insurance pays a one-off lump sum if you suffer a defined illness or injury.
  • The terms of your insurance policy are outlined in the PDS.
  • Trauma insurance allows you to focus on recovery, instead of worrying about your finances.

Not all insurance policies are the same. Make sure you read the documentation before you sign on the dotted line.

 The Wealth Guy Signature

 

let-me-help-with-your-life-insurance-options-the-wealth-guy
The information on this blog and website is of a general nature only. It does not take into account your individual financial situation, objectives or needs. You should consider your own financial position and requirements before making a decision. We recommend you consult a licensed financial adviser in order to assist you with this.

 

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