What is trauma insurance (critical illness insurance), why does it exist, do I need it and if so how do I get covered?
What is Trauma Insurance?
While life insurance has been around since the 18th century, trauma insurance is a relatively new development.
In Australia most trauma insurance claims are made for cancer diagnosis.
Trauma insurance was first introduced on 6th October 1983 in South Africa and was originally known as dread disease insurance.
Since that time dread dead insurance has evolved to become known as trauma or critical illness insurance and has spread globally.
In order for the trauma policy to be triggered (paid out) you must suffer from one of the medical conditions disclosed in the insurers policy document.
Look at the Trauma Insurance 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
* 2014 TAL claims statistics
As you can see the vast majority of claims were cancer related
Do I Need Trauma Insurance?
The simple answer is, it depends on your financial situation.
If you are a multi-millionaire and could retire tomorrow but continue to work for the fun of it, then chances are you don’t need trauma insurance.
If on the other hand a traumatic event could be have a big impact on you and your family’s financial position, then chances are trauma insurance is a good idea.
Consider this real life example:
What About Health Insurance?
Illness and injury is expensive and medicare / private health insurance won’t cover all your costs.
This is not to mention the other costs and financial stresses that arise if you have to take days of work, or spend money on rehabilitation.
Depending on your diagnosis, many life insurances such as TPD and income protection won’t kick in because cancer is so common, the treatment options are relatively manageable and the survival rates are high.
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.
Conditions Covered by Trauma Insurance
All trauma policies are different.
The terms of the cover are disclosed in the insurance policy document – so make sure you read it.
Here is an example of the conditions covered by One Path insurance under their trauma policy:
*page 42 of One Path PDS dated 6 November 2016.
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.
Trauma is designed to get you back on your feet as quickly as possible, without the usual level of financial stress.
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:
Here are some other factors worth considering when applying for trauma insurance:
When it comes to the trauma insurance premium there are two options:
- Stepped premium – one that will rise every year, with your age and risk level.
- 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.
As long as you continue paying the annual premium, a trauma insurance policy can last up to 70 years of age.
Trauma insurance is not tax deductible, but this means any payout is usually tax free (check with your accountant).
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.
- Trauma insurance is a new comer in the insurance world
- Trauma insurance pays a one-off lump sum if you suffer a defined illness or injury.
- You should consider trauma insurance if an injury or illness could derail your financial position.
- The terms of your insurance policy are outlined in the PDS.
Not all insurance policies are the same. Make sure you read the documentation before you sign on the dotted line.
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.