What is Trauma Insurance?
Due to improvements in medical science, people do not always die as a result of suffering a serious medical condition, e.g. heart attack and stroke. In fact, of those who suffer a critical illness between the ages of 30 and 65 years approximately 80% survive and often go on to live a normal life.
While people who suffer such conditions are generally ineligible to receive life insurance, disability or superannuation payout, while recovering, it may be difficult for an individual to earn an income and therefore meet their everyday expenses. In addition, they can sometimes be left with severe financial difficulties because of the high cost of treatment and rehabilitation.
For this reason, the life industry now offers insurance for certain serious conditions that people are likely to survive but where they still require financial assistance to recover from its effects. This cover is known as ‘trauma insurance’ ‘critical illness insurance’ or ‘living cover’. It is a type of disability insurance that may be taken as a rider to a term life insurance policy or as a separate stand-alone policy.
How it works?
The basic mechanism of the policy is that a lump sum of money is payable upon the occurrence of an insurance event, provided the definition of that event in the policy is satisfied.
Trauma insurance helps alleviate some of the stress that comes with being diagnosed with a serious condition and allows the insured to concentrate on coping with their condition instead of worrying about any financial hardship that they may be facing. It is one of the few insurance products that can provide the insured person with a benefit while they are still alive. It provides a lump sum when it is most needed – i.e when the insured suffers and survives a traumatic event.
Trauma cover is usually self-owned and premiums are not tax deductible. The sum insured is paid as a lump sum to the policy owner and they can use it in any way they see fit. Common uses are to pay for medical and rehabilitation expenses, to pay off debt or to take the family on holiday to help everyone recover after such a traumatic event.
Trauma cover may be held as a stand-alone policy or linked with Life or TPD cover. Under a linked policy, all three covers apply but there is only one sum insured. In the event of a claim under one policy, all cover under the policy is reduced, cancelled or suspended for up to 3 years, however you can counteract this from happening by placing a buy-back option on the policy. A buyback option allows you to regain the reduce cover amount after a period of time.
While trauma policies usually offer a range of conditions, such as coma, organ failure, blindness and dementia, around 90% of claims relate to one of the four major trauma event of stroke, cardiac arrest, bypass surgery and cancer.
Trauma policies exclude suicide within 13 months of the policy commencement, intentional self-injury or intentional infection. Trauma from war or civil commotion is also excluded.
All stand-alone major trauma policies require a period of survival after diagnosis of a specific trauma event. Artificial life support machines may assist the survival in most cases. In most cases the survival period is 14 or 30 days. If death occurs during the survival period, a nominated death payment (e.g $5,000 – $10,000) may be paid before the policy ceases.
How to apply for life insurance and who can set it up?
Selecting the most appropriate trauma cover for a client can prove to be a very difficult task as there are a number of products available in the market. A financial adviser can assist you with selecting a trauma policy that provides cover for a variety of conditions and events, as well as consider any restrictions placed that may not allow you to receive a benefit during claim time.