Accident and Sickness Insurance Explained

Information verified correct on September 29th, 2016

Can I benefit from accident and sickness insurance?

Accident and sickness insurance is cover that provides coverage against illness or injury by providing a replacement income of up to 75% if you are unable to work

What are some important features of this type of cover?

  • Income protection. Benefit is usually designed to replace up to 75% of your income if you're unable to work.
  • Waiting periods before you can claim. This is usually around 14 days.
  • Benefit periods. This is how long you are covered for and is usually up to two years.

Who is this cover suited to?

  • This type of insurance is suitable for individuals who are looking for a short-term income cover.

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What does accidental death insurance cover?

Accidental death is defined by insurance policies as a non-deliberate death caused by sustaining violent, external bodily harm such as in a car crash or falling from a great height. It is sometimes known as accidental death and dismemberment (AD&D) insurance.

I thought life insurance already covers me for accidental death?

Term life insurance will generally pay out in the event of these anyway, but accidental death insurance, when purchased as a life insurance extra, provides additional benefit payments for these particular types of death.

Standard life InsuranceAccidental-only death benefit
Payout in the event of an accidental death$200,000$250,000

A life insurance policy with a $200,000 sum insured, and a $50,000 accidental death benefit, will pay out $250,000 in the event of your accidental death, but only $200,000 if the death is not classified as accidental.

Who should consider this type of policy?

This can be useful for people who work in environments where they are at particularly high risk of certain hazards, such as high altitude workers being at risk of falls, or forestry workers being at risk of tree impacts. Accidental death cover provides additional benefits to your family, dependents or beneficiaries to compensate for the suddenness of your passing and related unforeseen expenses. It is primarily used as additional cover against certain occupational hazards and everyday happenstance.

What’s excluded?

Accidental death will not cover anything listed as an exclusion in your life insurance policy, even if it fits the definition of accidental death. Common exclusions are things like accidental death resulting from doing something illegal, death resulting from an act of war or any intentional self-harm within the first 13 months of the policy.

Your insurer may also specifically exclude accidental death resulting from a particularly dangerous pastime or hobby, or other things.

What does serious illness insurance cover?

Critical illness insurance is also known as serious illness or trauma insurance. It will pay lump sum benefits in the event of you suffering a specific health issue that is mentioned in the insurance policy. Some of the illnesses commonly covered by this extra include:

  • Cancer
  • Specific organ failure, such as lung failure or kidney failure. The types of organ failure covered will be listed separately in the trauma insurance section of your policy
  • Heart attack
  • Major organ transplant
  • Diseases such as multiple sclerosis, Parkinson’s and muscular dystrophy. Check the critical illness or trauma section of your insurance policy for a complete list of diseases covered by this rider

For example, if you have a $50,000 trauma insurance rider with a $200,000 life insurance sum insured, then you will be paid $50,000 upon diagnosis of a specific illness that is named in the insurance policy, such as cancer or kidney failure.

If you should eventually die, either because of this illness or another non-excluded cause, then your life insurance will pay out the $200,000 sum insured.

What’s excluded?

Serious illness or trauma insurance will not pay out if the condition was first diagnosed or became apparent within the waiting period after taking out a policy. It will also not cover:

  • Any health issue not specifically named and listed in your insurance policy
  • Any pre-existing conditions you have failed to disclose to the insurer, such as cancer in remission. If you have disclosed this to your insurer they may or may not decide to cover you for that particular issue
  • Any self-inflicted injury or harm within the first 13 months of taking out the policy

Is critical illness insurance worth it?

Critical illness insurance will bolster your payout if you get diagnosed with a condition on a shortlist of particularly serious illnesses, such as cancer. It may be worth it if you want protection in the event of these serious conditions.

What does accidental injury insurance cover?

Accidental injury cover also generally falls under the heading of trauma insurance, but may be found as a standalone product too. This is when your policy will also cover critical injuries, and it too will only pay out in the event of specific, named events. In many cases the amount of benefits paid will depend on the exact injury. For example, they may be:

  • $50,000 for loss of all limbs or total blindness
  • $25,000 for the loss of a single limb or one eye
  • $10,000 for fractured pelvis or hip bone
  • $7,500 for fractured skull and $5,000 for fractured leg or arm bone
  • $15,000 for severe burns to more than 20% of the body
  • $7,500 for severe burns to less than 20% of the body

For example, if you are in a car accident and suffer severe burns to less than 20% of your body, and total blindness as a result of injuries sustained, you would typically be paid a $50,000 lump sum as the single highest value applicable. Meanwhile, a different insurer might pay out $57,500 as the combined benefits for total blindness and burns.

What's not covered?

Depending on your insurer, certain conditions will apply. For instance they may not pay more than one benefit at a time even if multiple injuries are present, there may be a lifetime limit of one claim per body part or other restrictions. Other common restrictions are:

  • Any intentional self-inflicted harm
  • If your occupation involves working at heights above 15 metres, working underground in the mining industry, offshore in the petroleum industry or overseas with the armed forces
  • If you were rock climbing, deep sea diving or racing a motor vehicle
  • If you were under the influence of alcohol or drugs other than prescribed by a doctor and taken as directed

Is accidental death or injury insurance worth it?

Accidental injury or death riders mean your policy will pay out larger than usual benefits in the event of an accident. For trauma and life insurance purposes, an accident is defined as non-deliberate, external physical injury. For example, suffering organ failure as the result of being hit by a car would qualify as accidental, while being diagnosed with organ failure out of the blue would not.

These riders are worth it if you are at particularly high risk of accidental injury or death, or think your beneficiaries could use an extra amount to compensate for the suddenness or unexpectedness of your passing.

What can I spend benefit payments on?

Both accidental death and serious illness insurance typically pays benefits as a lump sum to be used at your discretion. You can use the benefit payment to repay debts, make mortgage payments, manage ongoing expenses, look after your rehabilitation or anything else.

Trauma insurance benefits are generally used for medical expenses, rehabilitation costs and learning how to live with a severe health issue. Accidental death benefits are usually used to cover immediate costs such as funerals, and ensure your family’s financial security by increasing the benefits paid by the life insurance policy.

In both cases the decision of what to spend the benefit payments on is entirely up to you or your beneficiaries, but should cover the essentials first, such as retrofitting your home or car for wheelchair access if needed, ensuring you can afford ongoing physical therapy or rehabilitation, paying for carers and otherwise maintaining quality of life despite changed circumstances.

General exclusions found in most policies

The specific exclusions vary between insurers and policies, but there are some which will apply to the vast majority of life insurance policies and riders like trauma or accidental death cover. These include:

  • Claims arising from an intentional self-inflicted act will not be paid.
  • Claims will often not be paid if you work in a specific occupation. These include working at heights, underground occupations in the mining industry, jobs that require you to handle firearms or explosives, or positions working offshore in the oil, gas or petroleum industry. Many insurers class certain occupations as being simply too risky to cover.
  • Claims arising from your consumption of alcohol or drugs will not be paid, unless those drugs have been prescribed by a doctor and taken as directed.
  • If your claim arises as a result of war or civil insurrection, it will typically not be paid by most insurers.
  • Contracting HIV or AIDS will most likely exclude you from a serious illness insurance benefit payment.
  • Many serious illness or trauma insurance policies will not pay a claim if you do not survive a certain period (for example eight days) without life support after the occurrence or diagnosis of a condition.
  • If you engage in aviation activities other than being an ordinary fare-paying passenger on a regularly scheduled flight, like skydiving, your claim will not be paid.
  • Claims might not be paid if you are involved in motorsports, mountaineering or deep-sea diving.
  • If your claim arises as a result of your involvement in any illegal or criminal activity, don’t expect to receive a benefit.
  • Claims relating to suicide or attempted suicide are almost always susceptible to an exclusion period (typically 13 months) after taking out a policy.
  • If your claim is related to an injury incurred while performing or playing in any professional sport, insurance providers will generally not pay benefits.

Your frequently asked questions

Q. Is critical illness insurance worth it?

A. Critical illness insurance should be considered as a policy which pays extra for particularly severe illnesses like cancer. It is designed to cover additional expenses like ongoing care, rehabilitation, refitting a home for disabled access or acquiring more expensive medical treatment than might otherwise be available.To work out if critical illness insurance is worth the cost, you should know what is and is not covered by your health insurance for these conditions, and whether you have an elevated risk of these, such as a family history of certain types of cancer.

Q. Is accidental death insurance worth it?

A. Think of accidental death insurance as a way to get bigger benefit payouts in the event of a violent fatal accident. It might be suitable for your needs if you enjoy a risky pastime, have a dangerous job which is not excluded by the insurance policy or are otherwise at high risk.

Q. How much does accidental death and critical illness insurance cost?

A. These riders typically cost less than the core life insurance policies, and when purchased by themselves will generally cost less than life insurance. This is because they cover a much more specific set of conditions. Compare quotes from multiple providers to get an idea of how much it will cost you.

Q. Are critical illness and accidental death insurance premiums tax-deductible?

A. In Australia, tax-deductible premiums are those paid for policies which protect against loss of income. In the case of typical life insurance policies with riders for critical illness and accidental death, it is most likely that none of it is tax-deductible. However, there are likely exceptions if you have purchased life insurance through superannuation.

Q. Does accidental death cover start immediately?

A. It depends on your policy. A separate waiting period will generally apply to accidental death or injury riders, but these are usually just as long as the standard waiting period. Accidental death and injury cover will usually become active at the same time as the rest of the policy. However, if you upgrade an existing policy, there may be a new waiting period for the accidental death and injury rider only.

Q. Can I make a serious illness claim right after my policy begins?

A. Generally not. There is typically a waiting period for serious illness riders separate to the waiting period for the rest of the policy. You can only claim core benefits for illnesses diagnosed after the waiting period has ended, and can only claim the extra serious illness rider benefits for a condition diagnosed after the end of that separate waiting period.

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