What is Trauma Insurance?
Trauma Insurance, also known as ‘Critical Illness’ or ‘Recovery’ Insurance, provides a lump sum payment if you’re diagnosed with a specified illness or injury. A critical illness or serious injury can make it difficult to continue to work and Trauma Insurance can help support you and your family at this time by paying for medical and rehabilitation costs.
Ask yourself ‘would your family be able to maintain their lifestyle if you suffered a serious illness and, while unable to work, faced substantial medical and rehabilitation expenses?’. If the answer is no, Trauma Insurance may be suitable for you.
What does it cover?
Trauma Insurance pays a lump sum amount if you suffer a critical illness or serious injury. What’s covered under a Trauma Insurance policy varies between insurers so it is always important to read the Product Disclosure Statement (PDS), but commonly it covers:
- Critical injuries that result in blindness, loss of hearing or loss of a limb,
- Critical illness including heart conditions, neurological disorders, organ failure, transplants and blood diseases,
- Types of cancer such as melanoma, malignant tumours, leukaemia, prostate and breast cancer.
You should choose a policy that defines ‘Trauma’ in a way that is suitable to you. Some policies cover a broader range of medical conditions than others, and some policies pay out in the earlier stages of illness while others pay out later.
Is Trauma Insurance right for you?
Everyone’s situation is different so it’s important to consider a range of factors to see if you and your family would benefit from trauma insurance. Think about:
- How much income you and your family would need if you couldn’t work,
- If you have other insurances such as Income Protection or TPD,
- If you have private health insurance that could help pay for medical expenses,
- If you have dependents, a mortgage or other debts,
- If you would qualify for worker’s compensation or government benefits.
What can you use it on?
Trauma Insurance is paid out as a lump sum for you to use in any way you deem appropriate, giving you financial freedom. It can be used to help pay for:
- Out of pocket medical costs,
- Living expenses for you and your family while you’re unable to work,
- The cost of therapy, nursing care and special transport,
- Changes to housing if needed,
- Paying back debts such as a mortgage.
Stepped vs level premiums
There are two choices of premium options with Trauma Insurance, stepped and level.
- ‘Stepped’ premiums increase every year in line with your age and are more affordable in the early years.
- ‘Level’ premiums generally remain constant until you’re 65 (depending on the policy). Premiums are higher initially, however, can be cost effective over the long term.
Standalone vs linked policy
You can choose a standalone Trauma Insurance policy or one that is linked to your Life Insurance policy. A linked policy is generally cheaper than a standalone policy, however if you make a claim there may be an equivalent reduction in your linked Life Insurance benefit. With standalone cover, if you make a claim, other insurance policies you have won’t be affected.
The premiums on Trauma Insurance are generally not tax deductible and you will not pay income tax on the payout.
Due to changes in the law that came into effect on 1 July 2014, it is no longer possible to take out Trauma Insurance through your super fund. If you were in a super fund that offered Trauma Insurance before July 2014, you might still be covered. Contact your super fund to find out.
There is no one-size-fits all answer to how much coverage you should have. There are many factors to consider including how much money your family would need as well as your current savings and assets, and how much you can afford. You also need to consider:
- Waiting periods
- Cover level
- Premium structure