Trauma insurance (or critical illness cover) pays a lump sum when you suffer from a critical illness or serious injury. These funds provide financial protection, helping you pay for out-of-pocket medical expenses, power bills, mortgage payments, and more. But is it worth having trauma cover?
In this article, we explore if you need trauma insurance and the following:
- What is trauma insurance?
- The benefits of trauma cover
- How it compares with other types of life insurance
- And the claims process for a successful payout
This article covers the definition of trauma insurance, its benefits, and how it differs from other insurance types.
What is Trauma Insurance?
Trauma insurance (also known as recovery insurance) is a type of insurance coverage intended to offer financial security through a lump-sum payment to policyholders with a serious medical condition. Trauma insurance pays a lump-sum benefit to people suffering a serious injury or illness to help with out-of-pocket medical expenses, lost income, and other related costs.
Additionally, a trauma policy differs from other types of insurance, like income protection and life insurance, in that it primarily focuses on critical illnesses or injuries rather than providing income replacement or life cover.
Can I make a critical illness claim? >
What is Covered by Trauma Insurance?
Trauma insurance covers specific major traumas and serious illnesses, like advanced cancer, a major heart attack or stroke, and other medical conditions like paralysis, dementia, prostate cancer, chronic diabetes, major organ transplants, and more.
The serious medical conditions covered by critical illness insurance vary between life insurance companies. Please read the product disclosure statement (PDS) to understand the coverage.
More about critical illness claims >
Types of Trauma Insurance
There are a variety of trauma insurance plans available in Australia, each with its own set of advantages and features. A trauma insurance policy can therefore stand alone or be attached to another policy, like a life insurance policy. To accommodate a wide range of medical issues and catastrophic injuries, they also offer varying degrees of coverage, such as partial and full trauma benefits.
Standalone Trauma Cover vs. Death Cover
Standalone trauma cover is a type of policy that provides a lump sum payment if the policyholder suffers from a critical illness or serious injury. This type of policy is not linked to life cover and typically has a survival period of at least 14 days.
Alternately, trauma cover can be added to a life insurance policy, which provides a lump sum payment in the event of death or a critical illness. Bundling policies can offer comprehensive coverage, to give you financial protection in several different scenarios. When choosing between standalone trauma cover and trauma cover linked to life insurance, consider your overall financial goals and how much protection you need.
Partial and Full Trauma Benefits
Trauma insurance policies often offer partial and full trauma benefits.
• Partial trauma benefits provide a percentage of the sum insured for less severe conditions
• Full trauma benefits pay the full sum insured for more severe conditions.
The cost of trauma cover changes depending on the number and type of conditions covered. For instance, a policy with extensive coverage for a wide range of conditions typically has higher premiums than one with limited coverage.
How Trauma Insurance Works
Here’s how trauma insurance works in Australia:
• Trauma insurance policies typically have a waiting period before a claim can be made, usually around 90 days.
• To make a trauma claim, you must meet the policy’s medical definitions and severity requirements.
• Age, health status, occupation, and pre-existing medical conditions are a few factors that affect trauma insurance premiums.
• You can choose either stepped or level premiums, which will change the cost of the policy over time.
• When buying new trauma insurance policies, please carefully read the product disclosure statement (PDS) to understand the terms, conditions, exclusions, and medical definitions.
• Also consider seeking advice from a financial adviser to determine the right level of cover for your circumstances.
How Do I Buy Trauma Insurance?
To buy trauma insurance cover, it’s best to consult with a financial adviser or insurance broker to ensure your financial circumstances are considered. Alternatively, you can make direct contact with an insurance company. Generally, trauma insurance policies are stand-alone or linked with other insurance policies (like life insurance) and are sometimes included with an Australian super fund account.
Getting expert advice from a financial adviser can help you decide:
- If you should buy trauma insurance
- How much trauma insurance you need.
Can I Get Trauma Insurance Through My Super Fund?
Due to alterations to Australian legislation introduced on July 1, 2014, it is no longer possible to purchase trauma insurance through a superannuation fund.
About Insurance Premiums
You can control the cost of insurance premiums by choosing a linked policy, which is generally more cost-effective. Additionally, you can reduce the price of other cover levels by lowering the payout value. Some trauma insurance policies also offer a ‘buy-back’ option, allowing you to reinstate the original life insurance amount after a certain period following a successful trauma claim.
Additionally, choosing stepped or level premiums significantly impacts how much you will pay for trauma coverage, both now and in future years. This is how it works:
Stepped premiums: at policy renewal, the price is adjusted annually based on a greater claim probability as you age.
Level premiums: charges are not age-related; hence, you pay a greater initial premium with fewer changes over time.
How Australians Use a Trauma Payout
Typically, Australians use the lump sum payment from trauma insurance for various living expenses, like:
- Debt payments
- Mortgage payments
- Rehabilitation costs
- Household bills
- Funding medical costs
- Taking time off work to concentrate on healing
People who make a successful trauma insurance claim have financial freedom, reducing stress during a challenging period.
Comparing Trauma Insurance with Other Insurance Types
Trauma insurance (also called critical illness insurance) is distinct from other insurance types like income protection, life insurance, and total and permanent disability insurance because it is specifically created to offer financial protection for severe injuries and critical illnesses. We’ll compare trauma insurance with these insurance plans to examine them more closely.
Income Protection Insurance
Income protection insurance provides regular payments for a temporary inability to work due to illness or injury. In contrast, trauma insurance offers a lump sum payment for specific critical illnesses or injuries, regardless of whether you can work or not.
Life Insurance
Life insurance pays a lump sum upon the insured’s death or diagnosis of a terminal illness, providing financial support to the beneficiaries. Choosing the best life insurance policy for your needs considers your circumstances, finances, and those of your surviving dependents. Doing this ensures the loved ones of the life insured are protected in case of death.
On the other hand, trauma insurance covers critical illnesses or injuries, including serious diseases, during the insured’s lifetime, providing financial relief to the insured person during their time of need. Private health insurance can complement this coverage by providing additional benefits and options for medical care.
Total and Permanent Disability Insurance
Total and permanent disability (TPD) insurance provides a one-time lump sum payment if you become disabled due to an illness or injury and can no longer work.
Trauma insurance, in comparison, focuses on providing financial relief for critical illnesses or injuries, regardless of whether they lead to permanent disability.
Factors Affecting Trauma Insurance Premiums
Several factors can affect the cost of trauma insurance premiums, such as:
• Age
• Your Gender
• Current Health
• Occupation
• Lifestyle choices
For instance, older Australians and those with a pre-existing medical condition will have higher premiums due to an increased risk of a trauma-related illness or injury. Also, women typically pay higher premiums than men because they live longer and, hence, are more likely to suffer from a critical illness or injury.
How to Choose the Best Trauma Insurance Policy
Choosing new trauma insurance policies for the first time can be confusing. However, expert guidance can simplify the process and help you find one that meets your needs and requirements. Assessing the options, including T&Cs and how you qualify for a payout, is necessary to choose the best coverage.
Deciding between trauma insurance policies requires consideration of your personal circumstances, financial resources, and specific needs. Compare different policies to evaluate which coverage option is best for you, considering factors such as:
Assessing Coverage Options
Deciding between trauma insurance policies requires consideration of your circumstances, financial resources, and specific needs. Compare different policies to evaluate which coverage option is best for you, taking into account factors such as:
• Age
• Current health and medical history
• Lifestyle considerations
• Family history
Furthermore, your financial resources, including income, savings, and debt, as well as your requirements for a lump-sum payment, ongoing income protection, and a death benefit payment, must all be considered. Consult a financial advisor or insurance broker who can help you choose the best policy for your situation.
Reading the Product Disclosure Statement (PDS)
When recommending a financial product, a finance or insurance provider must give you a product disclosure statement (PDS). This document outlines details on the main attributes of the product, including costs, commissions, risks, benefits, complaint-handling procedures, and the process for making a critical illness claim.
A thorough read of the PDS is crucial to understanding the policy’s terms, conditions, exclusions, and the insurer’s medical definitions. By using this information, you can feel confident when selecting a trauma insurance policy, giving you peace of mind that you have adequate protection if you are diagnosed with a critical illness or severe injury.
The Claims Process for Trauma Insurance
In Australia, the trauma insurance claims process involves submitting required documents like doctor’s records and assessments and then waiting for a decision. Here are the steps:
Collate and Prepare Documents
Filing a trauma insurance claim typically requires the provision of documentation like medical records, proof of identity, and any other information requested by the insurer. Typically, these include:
- The insured person’s details
- Diagnosed illness or injury
- Associated medical treatment
- Test results and diagnostic reports
- Any other relevant medical records
A successful claim generally relies on providing honest, comprehensive, and accurate information when lodging your case. Any discrepancies or missing information can trigger delays or claim rejections.
Claim Approval Timeline
The claim approval timeline for trauma insurance can differ based on the insurer and the complexity of your case. However, insurance companies typically aim to provide a decision within a specified time frame, such as ten days. However, depending on the circumstances, the process could occasionally take longer, e.g., between 6 and 12 months.
During the claims process, please be patient and proactive. Ensure you provide all necessary details and quickly respond to any requests from the insurance provider. Doing this will help escalate the process, giving you a faster outcome.
Legal Advice for Trauma Insurance Payouts
When you have an approved claim, trauma insurance pays a lump sum benefit amount based on your level of coverage. Unsurprisingly, life insurance companies are often more focused on profits than helping your financial situation at a challenging time. That’s when our experienced insurance litigation lawyers can assist.
Aussie Injury Lawyers is one of Australia’s leading personal injury compensation law firms, with a 99% success rate for super insurance claims. Furthermore, all our legal services are 100% no win, no fee. It’s free to find out if you can claim your payout value and chance of winning. Call Now – 1300 873 252
Critical Illness Insurance FAQs
Is critical illness insurance worth having in Australia?
A major trauma, serious injury, or illness can stop you from working and jeopardise your finances. At such a time, critical illness insurance gives you peace of mind, knowing you can still pay the bills, support yourself and your family, and cover medical and rehabilitation costs.
What is the difference between income protection and trauma insurance?
Income protection insurance pays a percentage of your income to maintain your quality of life. Conversely, a trauma benefit payout gives you a lump sum amount. Both help you replace lost income at a critical time in your life.
What is the purpose of a trauma policy?
A trauma policy is a type of insurance that relieves financial pressure if you suffer from medical conditions that require costly treatment, long recovery periods, and/or major lifestyle changes. A trauma insurance payment allows you to cover costs that would otherwise be too much of a burden when you can’t earn an income.
Is a trauma claim payout a lump sum payment?
When you have a successful trauma insurance claim, you will receive a once-off lump sum payment. How much you receive depends on the insured value contained in the terms and conditions.
What is the difference between TPD and trauma insurance cover?
These two types of life cover both offer financial protection but differ in that:
- TPD pays a lump sum benefit when permanently disabled
- Trauma insurance pays a lump sum for a serious illness or injury
Is trauma insurance tax deductible?
According to the Australian Taxation Department, trauma insurance premiums are not tax deductible. Only life insurance that replaces lost income, such as income protection insurance, is a tax deduction.
What are the disadvantages of trauma insurance?
The key disadvantage of trauma insurance is that it only covers a specific list of serious illnesses or severe medical conditions listed in the policy terms. Illnesses such as major heart attacks, cancer, dementia, organ transplants, etc. Therefore, it doesn’t provide protection for accident injuries or all medical conditions that could stop you from working and earning income.
What is a direct life insurance policy?
A direct life insurance policy is a type of life cover bought directly from an insurance provider, bypassing the use of a third-party broker or agent.
