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What is Trauma insurance (or Critical Illness insurance)?

What is covered by Trauma insurance?Trauma Insurance

Trauma insurance cover (also known as Critical Illness insurance cover) provides a cash lump sum on the diagnosis of a medical condition. The number of conditions covered (benefits) varies widely, cheaper policies often offering fewer benefits.

The most common claims under trauma insurance policies are for: cancer, heart attack, coronary bypass and stroke, although other conditions can be covered.

List of common Traumas that can be covered
Alzheimer’s Disease Aplastic Anaemia Blindness
Burns – Server/Major Cancer Cardiomyopathy
Coma Coronary Artery Angio Coronary Bypass Surgery
Deafness Dementia Diplegia
Encephalitis Heart Attack Heart Valve Surgery
Hemiplegia HIV
– Occupational Acquired
Kidney Failure – Chronic
Liver Disease – Chronic Loss of Independence Existence Loss of Limbs or Eye
Loss of Speech Lung Disease – Chronic Major Head Trauma
Major Organ Transplant Motor Neurone Disease Multiple Sclerosis
Paraplegia Parkinsons’s Disease Pulmonary Hypertension
Quadriplegia Stroke Terminal Illness
Life Cover – Death Benefit Total & Permanent Disability Aortic Surgery
Out of Hospital
Cardiac Arrest
Benign Brain Tumor HIV
– Accidental Infection
Peripheral Neuorpathy

You don’t have to die…

Unlike life insurance, a trauma insurance benefit is paid when there is a confirmed diagnosis – not when you die of the condition. With the latest statistics from the Cancer Council Australia showing that 68% of cancer patients survive for more than 5 years, trauma cover provides you and your family with a lump cash sum to use at the onset of a disease, when funds are needed the most.

Why do I need Trauma insurance (Critical Illness insurance) cover?

Trauma Insurance was first introduced into Australia in 1986 when it was recognised that a critical illness (trauma) could have a damaging impact on the finances of an individual or family. Medical bills from a long lasting illness could cause severe financial hardship, particularly if you have limited savings or heavy debts. Financial stress could inhibit your recovery by forcing an early return to work or limiting your treatment options.

The payment of a trauma lump sum benefit can provide a financial buffer to cover out of pocket medical costs and medical treatments not covered by health cover, replace income while you are off work and allow a period of recuperation before returning to work. If the benefit is large enough it can be used to pay down your debts to reduce financial pressure or even allow a change of lifestyle, such as a change of job or a reduction in the number of hours worked.

Is Trauma insurance cover only for old people?

Trauma insurance is relevant no matter your age. For the over 40s the increasing risk of cancer, heart attack and stroke is obvious. For younger age groups trauma insurance provides cover for accident related trauma conditions, particularly those resulting from car accidents, such as paralysis, major head trauma, severe burns, loss of limbs, loss of sight and coma. There are also neurological conditions such as multiple sclerosis and cancers such as breast cancer, lymphomas and melanomas which can afflict younger people.

How much does Trauma Insurance cost?

The cost of trauma cover increases with the number and type of conditions covered. Most insurance companies offer two tiers of cover – basic/standard and comprehensive/premium. The main differences between these two types of policy is the number of trauma conditions covered and how many partial benefits are included.

A partial benefit will pay a benefit of between 10% and 40% of the sum insured for conditions which are less serious or life-threatening, such as an early stage melanoma or carcinoma not requiring major medical treatment. If you are paid a partial benefit this will reduce your trauma sum insured, with the remainder payable should your condition worsen, i.e. if your early stage cancer becomes malignant, or you suffer another unrelated trauma condition.

Another factor affecting the cost of trauma cover is whether life insurance cover is included or not. You might expect the cost to be higher if you could receive a benefit on either death OR suffering a trauma (and surviving more than 14 days). However, due to a quirk in the way stamp duty is applied, standalone trauma cover can in fact cost MORE not less than trauma cover linked to death cover. This is why Insurance Watch allows you to compare quotes for policies with and without life cover side by side, so you can see the effect on premiums of adding the life cover.

Other factors which affect the cost of trauma insurance cover are: your age at application time, whether you take out a stepped or level premium and whether other options, such as the life cover buyback option or trauma reinstatement option (see below), are included.

It clearly pays to shop around for your trauma insurance cover. Insurance Watch compares quotes for over 40 trauma insurance policies from over 10 different insurance companies. For a 40 year old male non smoker looking for $100,000 trauma insurance, premiums vary between $329.85 and $599.41 (as at 1st October 2018). Compare Trauma Quotes Online now.

How is Trauma insurance different to TPD insurance and Income Protection?

The disadvantage of Trauma insurance is that it only covers the specified conditions under the policy. It does not cover all illnesses or accidents. There are a number of medical conditions which may prevent you from working, such as stress, RSI or back pain, which will not be covered by your trauma policy.

Total and Permanent Disablement (TPD) insurance and Income protection insurance on the other hand will usually cover any sickness or injury which causes you to be unable to work. However these covers also have their disadvantages.

TPD insurance requires you to have been off work for at least three months and then judged to have a permanent disability such that you are unlikely to work again. Income protection insurance does not provide a lump sum and the monthly benefit you receive will only cover 75% of your income which could mean that you will struggle to meet medical costs.

Including trauma insurance in an insurance package will provide valuable funds to meet medical costs when they are most needed – at the time of diagnosis. If you are not working, performing home duties or working in a high risk occupation you may find that work based TPD and income protection are not available to you, making trauma and life insurance your only insurance options.

Will my Trauma insurance claim be paid?

Total claims paid by life insurers in the year ending 30 June 2016 amounted to $8.2 billion according to data from APRA.

A review by ASIC in 2016 found that on average approximately 90% of all claims submitted were paid – of these 86% of Trauma insurance claims were paid. The main reasons for declined claims were non-disclosure at time of application and ineligibility due to policy definitions, limitations, exclusions or pre-existing conditions.

Trauma insurance claims statistics show that 50% to 60% of trauma claims are for cancer, the most dominant types being breast cancer for women and prostate cancer for men. Cardiovascular conditions such as heart attack and stroke also comprise a large share of overall claims.

If you have taken out a trauma insurance policy through Insurance Watch and you need to make a claim we will help you during the claims process.

Recent Trauma insurance claims paid to Insurance Watch customers:

$25,000 – paid to 36 year old farmer for early stage melanoma

$105,000 – paid to 40 year old doctor for diagnosis of multiple sclerosis

$340,000 – paid to 40 year old homemaker for benign brain tumour

$194,500 – paid to 45 year old computer keyboard operator for cancer

$105,000 – paid to 49 year old teacher for breast cancer

$105,000 – paid to 49 year old business analyst for testicular cancer

$55,800 – paid to 50 year old computer programmer for 2 stents inserted

$262,500 – paid to 52 year old management consultant for stomach cancer

$150,000 – paid to 52 year old computer consultant for cervical cancer

$120,000 – paid to 56 year old public servant for prostate cancer

$105,000 – paid to 61 year old sign-writer for heart attack

Compare Quotes for Trauma Insurance Online Now


Other topics

Death benefit can be included

Some trauma policies also include a Death benefit, which will have the same pay out value as the trauma benefit. In this case, obviously, only ONE pay out will be made – either on a trauma or on death. There may be savings available in buying life cover as part of a trauma package rather than as a stand alone policy. Some trauma policies also cover Total and Permanent Disability (TPD). When packaging benefits in this way you should be aware that a claim on trauma or TPD will reduce the underlying life cover unless a buy back option is purchased.

Consider the Buy back option

Normally only ONE trauma benefit is ever payable to an individual under a policy – after a pay out you may become uninsurable and no longer able to buy Life insurance, Total and Permanent Disability, Trauma or Income Protection insurance cover from any insurer. So it is important to either purchase a buy back option or have sufficient cover to enable you to live out your remaining life on the proceeds of the claim. Buy back options are offered on some policies for an extra cost while others automatically include a buy back option. If you have the option, you may, after a qualifying period, usually 12 months after the benefit payment, re-purchase the death cover component. There is also a trauma reinstatement option available which will allow your trauma cover to be reinstated (for conditions other than that claimed on) after a qualifying period of 12 months following your claim.

Illnesses which account for most claims

When looking for a trauma policy, you will be confronted with a variety of conditions covered by the policy. However four of these conditions account for the great majority of claims – cancer, heart attack, coronary artery disease and bypass surgery and stroke. Therefore it is the definitions of these top four conditions within the policy which should be carefully scrutinized. While increasing the number of conditions covered increases the likelihood of an illness being covered by the policy, the additional conditions will usually come at the cost of an increased premium.

Examples of why claims are declined

Read carefully the exclusions and other conditions for the traumas covered. Pre-existing conditions must be declared. Conditions caused by intentional self inflicted injury are usually excluded.

Claims are declined most frequently due to the following:

  • claim outside cover defined by policy
  • pre-existing condition had not been disclosed
  • claim made before expiry of the waiting period
  • claim made for a condition which was not covered
  • suicide within 13 months of policy commencement
Waiting Periods apply

In most cases “accidental” types of traumas are covered immediately, although many insurers impose a waiting period (commonly 90 days after the policy is accepted) for certain illnesses eg cancer, stroke, heart attack. This is particularly important when changing or replacing policies as you may not be covered during the waiting period on the new policy for certain conditions.

Life insurance case studies

Read case studies for people who are:

  • Single and working
  • Married, no children and two incomes
  • Married with children and one income
  • Older couple approaching retirement with adult children

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