What is trauma insurance?

What is trauma insurance?

Trauma insurance, also known as critical illness or recovery insurance, may provide a lump sum of money if you’re diagnosed with a critical illness or injury. This can include illnesses and injuries such as heart attacks, strokes, cancer or serious head injuries.

The pay-out could help you cover costs such as:

• out-of-pocket medical expenses (including costs not covered by private health insurance)
• rehabilitation expenses
• lifestyle changes such as home modification costs
• living expenses if you are unable to work
• repaying debts such as a home loan or credit card.

What conditions does trauma insurance cover?

The conditions covered will vary between insurers and policies, but generally trauma insurance can cover conditions such as:

• cancer
• heart conditions such as heart attack and coronary bypass surgery
• neurological conditions such as stroke and dementia
• organ disorders such as chronic kidney failure and major organ transplants
• permanent conditions such as blindness, loss of hearing, loss of speech and loss of limbs
• intensive care treatment.

The Australian Government’s Moneysmart website says trauma insurance doesn’t cover mental health conditions.

Different insurers not only insure against different conditions, they may also have their own definitions of each condition. This makes it important to read the provider’s product disclosure statement (PDS) and other applicable product documentation to understand what you are covered for.

What is the difference between trauma insurance and TPD?

Total & Permanent Disability (TPD) insurance  pays a lump sum if you become totally and permanently disabled because of an illness or injury and are unable to work.

By contrast, trauma insurance is all about helping you recover from a critical illness or injury, so it pays a one-off lump sum regardless of whether or not you can still work in future.

Why might I need trauma insurance?

Whether or not you need trauma insurance will depend on your personal circumstances. It can be helpful to consider how you’d manage financially if you became ill, addressing such issues as:

• What expenses would you need to cover? For example, any medical and rehabilitation costs, living expenses and paying off any debt.
• What existing insurance policies do you have? If you have health insurance, this may help cover some of your medical expenses. If you have income protection or TPD insurance, they could potentially help replace any loss of income. You could have these last two types of cover through your super fund.

It may also be worth thinking about any other financial resources you could draw on. This could include savings, investments or even your own business.

You may even be able to gain early access to your superannuation on compassionate grounds, depending on your circumstances.

But there are risks and downsides to using money from your business or withdrawing your super early, so you should consider seeking professional financial advice before making a decision.

It can also be helpful to think about whether you have a family history of particular health conditions that could make it more likely you may need trauma insurance.

Seeking professional financial advice can help you decide whether to purchase trauma insurance and how much cover you might need.

How can I compare trauma insurance?

If you’re looking to find the best trauma insurance policy to fit your needs, it could pay to do some research and investigate a range of policies on offer. Factors you might like to consider could include:

• Coverage: What illnesses and injuries does the policy cover and how does the policy define these?
• Exclusions: What isn’t covered by the policy?
• Premiums: How much does the policy cost and will the premiums increase (called stepped premiums) or stay the same (called level premiums) each year?
• Benefit amount: How much will the policy pay out in the event of a successful claim?
• Waiting periods: Insurers will often impose a waiting period before you can make a claim (e.g. three months from when you take out or recommence the policy).

How much does trauma insurance cost?

The cost of trauma insurance will depend on factors such as your age, gender, occupation, smoking status and the level of cover you take out.

Insurers will typically offer one of the following two options:

• Stepped premiums: the cost of your premiums will increase each year as you get older and your risk increases.
• Level premiums: premiums will usually be more expensive initially when compared with stepped premiums but will generally stay the same as you age.

What do you need to tell your trauma insurance provider?

When you apply for trauma insurance, it’s likely that your provider will ask you a series of questions about you and your medical history. The type of questions and the depth of information required will likely vary based on the policy you’re applying for, but you’ll typically be asked about:

• Your age
• Your current job
• Your medical history
• Your family’s medical history
• Your lifestyle and whether you participate in extreme sports
• Whether you’re a smoker

Generally speaking, insurance providers want to assess the risk associated with any policy, and the riskier they may perceive you to be, the more your premiums might cost. Therefore, if an insurance provider does not want detailed information about your medical history, you might assume that the premiums for the policy might be more expensive, or that it might have more exclusions or narrower terms than other policies.

It’s important that you answer any questions from your insurance provider honestly, as failure to do so could void your policy or cause a claim you make to be denied.

How can I buy trauma insurance?

You can buy trauma insurance through a financial adviser, through an insurance broker or directly from an insurance company.

You can usually take out trauma insurance as a stand-alone policy or you may be able to link it with life insurance cover. Generally, it will be cheaper to buy a linked policy, rather than a stand-alone product.

But if you buy a linked policy and make a successful trauma insurance claim, Moneysmart warns the other cover levels will typically be reduced by the amount paid out through trauma cover.

Some policies may offer ‘buy-back’ options, which allow you to reinstate your original life insurance amount after a period of time.

Cover image source: sfam_photo/Shutterstock.com