Your Life

7 questions to ask about trauma insurance

- April 8, 2022 4 MIN READ
Trauma insurance - find peace of mind in your recovery

Trauma insurance could help support you and your family through the worst of times.

A lump-sum trauma insurance payment can help you focus on receiving the best treatment available, pay for rehabilitation, and even cut back your work hours to be able to concentrate on your recovery.

If you have suffered a serious illness or major injury, trauma insurance can help ensure that certain medical emergencies don’t turn into financial crises. Leaving you to focus on your recovery and time with your family.

In some cases trauma insurance will pay out where other covers such as income protection or total and permanent disability are not eligible.  This was the case for two of my clients diagnosed with cancer who continued to work. The money was able to cover expenses that came up along the way.

These are the questions you need to ask to ensure the cover you take out is right for you.

1. What is trauma insurance and what does it cover?

Also known as critical illness cover, trauma insurance covers specified serious illnesses and injuries that can be debilitating. These are injuries that generally require extensive medical treatment.

It can cover injuries such as major head trauma, severe burns or permanent blindness, as well as certain cancers, heart attack, stroke, Alzheimer’s and even major organ transplants.

Keep in mind that different trauma policies can cover different conditions. You also need to meet the severity criteria of the condition. This would be outlined in your product disclosure statement.

2. Where can I get trauma insurance?

Trauma insurance is offered by a wide range of life insurance companies and each company will vary with their product types and underlying features.

You can buy trauma insurance:

  • through a financial adviser or insurance broker
  • directly from an insurance company.

Talk to your existing insurers first, use a comparison website to compare offerings across insurers, and seek the advice of your financial adviser.

Due to changes in the law from 1 July 2014, it is no longer possible to take out trauma insurance through your super fund.

3. How much trauma insurance do I need?

It’s not pleasant to think about falling seriously ill or being badly injured, but life sometimes throws up unpleasant surprises. You can take a number of options into account when choosing your level of cover. These include rehabilitation costs, medical expense, income replacement, etc.

4. How do I pay for trauma insurance?

When taking out trauma insurance you can choose between stepped or level premiums.

With stepped premiums, the amount you pay in premiums increases each year as you get older.

With level premiums, the cost of your cover is based on the age you were when you took up the cover.

In general, if you select a level premium option, you should note that level premiums end at the Policy Anniversary before age 65. After that, they will change to the corresponding stepped premium for your age after age 65 until your policy expiry.

5. What is inflation protection and do I need it?

If you select inflation protection for your cover for either stepped or level premiums, the policy will increase with inflation. This helps it keep up with the rising costs of living.

Inflation protection adds incremental increases (usually 5 per cent) to your sum insured; there will be an increase to your premiums as a result.

6. How is trauma insurance paid out and how can you use the payout?

Trauma insurance is paid out as a lump sum for you to use in any way that you deem appropriate. This gives you the financial freedom to focus on your recovery and get back to work.

Things to consider include: how will your family cope financially if you are no longer able to earn a stable income? And how will you pay for your recovery and the cost of medical expenses on top of your existing financial commitments?

Among the many things to consider are the savings, easily sellable assets (like shares) and back up plans you may already have in place to help you through an emergency.

You should also review any other insurance policies you may have, such as income protection or any other policy you may have that may include a rider or a linked critical illness benefit.

It’s important to be aware of any other debts you have that need to be covered in the event you fell seriously ill or were badly injured.

Other factors to examine can include how much money your family will need to cover costs on a day-to-day basis. That includes cover for bigger ticket items such as mortgage payments and educational expenses. Will these costs rise if, for example, your children go to university or the family needs a new car?

Among the many practicalities, worthwhile thinking about is whether your partner could step in and support the family if you were no longer able. Or whether they will need to stop working to care for you.

7. How much cover can you afford?

If you do decide you need cover, it’s important to take the time to think about how much cover you can actually afford.

Some ways that people may use the payout include:

  • To cover medical costs not covered by a private health provider, including speciality therapy
  • As a form of income if you are no longer able to work
  • To cover the costs of moving into a new living situation as a result of the trauma
  • For debt repayment so your family is not left struggling

Your insurance company will request the medical records relating to the event or illness that has necessitated your claim. So, it’s important to keep these handy so you can receive the support you need as quickly as possible.

Dealing with a serious illness or injury is difficult enough without the added stress of finances. Trauma insurance can help ensure you can focus on your recovery and your family during this time.

This is an edited version of an article that originally appeared on RP Wealth Management. It’s republished here with permission. This article contains general information only. This should not be relied on as independent finance or tax advice. If you are after specific professional advice, speak to your registered tax agent/financial advisor or reach out to the team at RP Wealth Management.