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What is Trauma insurance (or Critical Illness insurance)?

What is covered by Trauma insurance?Trauma Insurance

Trauma insurance (also known as Critical Illness insurance) 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…

The trauma benefit is paid when diagnosis is confirmed – not when you die of the condition. It provides you and your family with a lump cash sum to use when it is needed most.

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

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 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 is Trauma insurance different to TPD insurance and Income Protection?

Trauma insurance only covers the specified conditions under the policy. It does not cover all illnesses or accidents which may prevent you from working, such as stress, RSI or back pain. Total and Permanent Disablement (TPD) insurance and Income protection insurance will usually cover any sickness or injury causing an inability to work. However as TPD insurance requires a permanent disability and income protection insurance does not cover 100% of income there is a place for trauma insurance in any insurance package. For those who are not working, performing home duties or in high risk occupations, trauma and life insurance may be the only insurance options available.

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.

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

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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. If you purchase the option, you may, after a qualifying period of the benefit payment, re-purchase the death cover component.

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. Recent claims experience from one insurance company showed the cause of claims to be about 62% for cancer, 13% for heart attacks, 11% for coronary artery disease and bypass surgery, 9% for strokes and the remaining 5% spread amongst the other conditions. Therefore the definitions of these top four conditions within the policy 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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