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Trauma insurance is a type of risk cover that pays a lump sum amount if you are diagnosed with a critical illness or suffer a serious injury such as a head or significant body injury. When a person is diagnosed with cancer or has a stroke or heart attack, or suffers a serious injury, there are usually significant costs that will need to be incurred that are not otherwise covered.
For peace of mind, that if an event occurs that is serious there is an insurance payment that will help them (partly) pay the financial costs of that event. For instance, there may be out-of-pocket medical costs, rehabilitation, travel and accommodation costs for your family, and immediate loss of income.
This is not an exhaustive list but a trauma policy is designed to give you peace of mind that if you develop a critical illness or suffer a serious injury, the financial cost of that event is alleviated and that you are able to maintain some level of financial stability.
Trauma cover does not cover all the costs of a critical illness or serious injury.
Trauma cover and Workers compensation
References below to workers compensation are designed to be a summary only. Workers compensation is a state-based form of statutory insurance and there are variations between states.
If you are injured at work or on your way to and from work, you will usually be covered by workers’ compensation insurance. However, if you are seriously injured outside the purview of your work, workers compensation insurance does not likely cover you.
Also, workers compensation has limits and schedules that mean that your financial position is often changed adversely even if you receive workers compensation related to an injury. Workers compensation does not cover heart attack, cancer or stroke unless it is work-related. We have seen that even where cancer is work related the mechanisms of a claim are often cumbersome.
Workers compensation insurance usually has periods where you are provisionally covered to allow the insurer to assess liability but these are subject to limits. Also, there are limits on workers compensation similar to other insurance, even where a claim is successful. These limits can include the proportion of the pre-injury income covered and maximum income covered.
The purpose of trauma is to provide you with that additional cushion to alleviate some of the additional costs to you but it is not a panacea.
Trauma insurance does not cover mental health conditions. Other types of insurance such as income protection and TPD can cover mental health conditions but our experience is that insurers can make it difficult to make claims for mental health conditions. There has been some controversy because this may be a form of discrimination.
Other words for Trauma Insurance
Trauma insurance or trauma cover is sometimes called ‘critical illness insurance’ or ‘recovery insurance’. As can be seen from the description above, trauma insurance does cover some types of critical illness hence the use of that term.The use of the term ‘recovery insurance’ is important to understand.
Depending on the type of trauma event, it is rare that someone will be able to afford trauma cover that enables them to fully recover from a trauma event, but trauma cover insurance helps in the recovery.
As with all insurance, it is important to understand the terms of the insurance, noting that the terms vary from insurer to insurer and between policies. A financial adviser, who is expert in risk cover, will be able to advise you on the terms of different policies and make sure that the right trade-offs are undertaken.
Importantly, for certain conditions or injuries it is important to understand the extent to which a person needs to be impacted for the claim to be paid. The product disclosure will variously describe the severity to which a person needs to have the condition or injuries to be eligible to claim. Trauma does not cover all conditions and injuries.
It is important to review the PDS. Also, some insurers offer plus cover that offer additional conditions and early stage cancers. There are policies related to children. A financial adviser, expert in insurance and risk cover is able to assist with the right type of cover for you.
Trauma insurance is an expensive form of insurance, and this relates to the relatively high incidence of trauma events such as diagnosis with cancer or having a heart attack. It is important to undertake a trade-off between other types of insurance, level of cover, and conflicts with your retirement planning objectives.
Trauma insurance premiums may not be paid or funded from your superannuation account, so in taking out trauma insurance it is important to consider your cashflow and the sustainability and affordability of the cover.
It is important to have expert advice so that a sufficient number of insurers can provide premium cost and terms to cover you for trauma insurance. At Setch, we approach a number of insurers on your behalf, and work out with you whether trauma cover is right for you and if so which policy. When we say work out with you whether trauma cover is right for you, the reason is that you need to trade-off trauma insurance and its cost with your other financial objectives.
It is important that at the time that you apply for trauma insurance, as with any other type of insurance or risk cover, that you are honest about pre-existing conditions and disclose them to the insurer. To the extent you did not disclose a pre-existing condition at the time the policy was instigated, it may result in the insurer denying the claim in the future.
When taking out trauma cover it is important to consider the waiting period for making a claim. The shorter the waiting period the higher the premium. For waiting periods on all insurance including trauma, it is important to work with a financial adviser to ensure that you have a buffer, should an event occur, in your savings account, mortgage offset or in additional mortgage repayments (or a combination).
While it is great to be ‘fully’ insured should something happen to you, it is important that you obtain the best trauma insurance for you, which involves considering your objectives and goals. This involves making trade-offs and working with a financial adviser so that you make the right decisions for you by understanding the different types of insurance and, whether and where trauma fits your needs.
Trauma insurance premiums are payable outside of super from your personal cashflow generally, so there is a trade-off between having trauma in place (at a high level of cover) and other priorities. The premiums on all forms of risk cover and insurance need to be weighed carefully, with your wealth accumulation and retirement objectives.
Trauma, TPD and Income Protection overlap but they cover different types of events and pay on a claim in different circumstances or events, and the calculation of the payment(s) are different.
For instance, trauma cover pays on the occurrence of an event that is defined at a given level of severity (in the Product Disclosure Statement) but you may be able to make a claim while still able to work and not totally disabled. You cannot make an income protection claim if you are still able to work, noting the nuance between ‘own’ and ‘any’ occupation. You cannot make a TPD claim unless you are total and permanently disabled although there is some consideration of the application of ‘total’.
TPD and Trauma pay a lump sum, however income protection is payable as a proportion of your pre-event income. Although life insurance is generally payable upon death of the insured, most policies will pay within 12 or 24 months of expected death.
Importantly, if you hold more than one type of policy, whether you can claim under more than one policy for a particular event will depend on the type of event, where the policies are held, and the terms of the policies. Reviewing the PDS is critical.
Claiming on your trauma will not typically impact your ability to keep in place your other insurance policies and make a claim in the future. It is important to seek advice because if one or more of those other policies are group cover such as in an industry fund there can be exceptions. Group cover is not automatically renewable and the policy terms can be changed to the detriment of the insured on an annual basis.
The above is designed to encourage you to work with a financial adviser to get the right policies and level of cover for you, and to understand the interaction between insurance cover and your wealth accumulation and / or retirement goals. When you approach an insurer directly, you are not obtaining personal advice and you are not obtaining the level of customisation that comes with working with a financial adviser.
Trauma insurance premiums are generally not tax deductible (except in cases where they are paid for business purposes and subject to meeting conditions), and payments on a trauma claim are not taxable.
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Learn MoreIt is a type of risk cover that pays a lump sum amount if you are diagnosed with a critical illness or suffer a serious injury such as a head or significant body injury. It is important to review the product disclosure statement of your particular policy.
It covers many conditions such as heart attack, cancer and stroke as well as serious injury. It is important that the product disclosure statement is reviewed professionally to make sure that you understand the conditions that are covered, as well as the severity that is required for eligibility to make a claim.
Trauma insurance is a valuable type of insurance for any adult because anyone can have or suffer from the types of conditions that it covers. However, whether to obtain trauma insurance and the level of cover involves weighing carefully your other objectives.
If you become ill or have an injury within 90 days of the commencement of a trauma policy, you will generally not be able to claim. If you are covered by trauma insurance and entitled to make a claim, the time it takes from when the claim is made to when the claim is paid, varies between insurers and depends on the nature of the claim. Sometimes claims can be paid within a fortnight and other times it can take much longer.
Generally not. Pre-existing conditions are generally excluded from cover or subject to loadings depending on the pre-existing condition and the level of severity.
Yes. There can be benefits from bundling.
Pre-existing conditions are likely to be excluded. It is important to give a full disclosure to the insurer on the application and as part of the tele-interview. Generally, self-inflicted injuries and illnesses are excluded but some policies will cover such events after 13 months. It is important to review the PDS.
You can adjust your trauma insurance cover over time. It is important to remember that as you age it may become more difficult to increase cover limits on most types of insurance including trauma insurance. As you age your health changes and your risk factors change (usually increase) and that may impact your ability to increase cover. Many people will decrease the cover on their insurance policies including trauma as their circumstances change such as paying off the mortgage or children no longer being dependent. Also, as many people opt for stepped premium policies, holding insurance including trauma should be assessed for ongoing affordability. It is important that when taking out any risk cover including trauma that you with the support of your financial adviser (such as providing projections) assess affordability and sustainability. Before reducing any risk or insurance cover it is important that the insured has a medical check up and blood test to ensure that they do not have any condition entitling them to claim.