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Critical illness insurance (also known as critical illness cover, or trauma insurance) provides you with a lump sum benefit if you suffer a serious medical condition. This payout can be used to ease your financial strain during an already stressful time.
Most critical illness insurance policies cover up to 50 different medical conditions including:
Critical illness insurance can either be bought as a standalone policy or bundled with your life insurance policy.
Compare critical illness insurance quotes from trusted brands
The finder.com.au critical illness insurance quotes comparison
The table below provides some example quotes for critical illness from brands listed on finder.com.au.
|Policy||Cooling-Off Period||Monthly Premium*|
|AMP Flexible Lifetime Protection||28 days||$72.81|
|BT Protection Plans||28 days||$74.41|
|Comminsure Protection||28 days||$82.18|
|TAL Accelerated Protection||30 days||$82.57|
|Zurich Futurewise||21 days||$83.56|
*The quotes provided are for 35 year old man, non-smoker who lives in NSW looking for Trauma Cover. Quotes are only to be used as a general guide and are subject to change. For most accurate pricing receive a quote on the finder.com.au quote engine.
What's in this guide?
This varies depending on the sex of the claimant. However, cancer was the top claim made amongst both men and females.
|Condition||Total % of claims (males)||Total % of claims (females)|
|Ischaemic Heart Disease||16.30%||2.50%|
|Benign Brain Tumour||5.60%||2.70%|
|Major Head Trauma||0.80%||N/A|
|Chronic Liver Failure||0.10%||0.10%|
|Systemic Lupus Erythematosus||N/A||0>|
Survey of the top trauma insurance claims in Australia between 2008-2012 by General Reinsurance
There is no restriction on how you use the proceeds of a payout from a critical illness insurance policy. You can use it to pay out your mortgage, pay for your medical expenses, you can use it for a long rehabilitation type holiday, clear yourself of debt or pay childcare and bring in home help. The benefit you will receive will allow you to appreciate your changed condition and adjust accordingly.
A major point to keep in mind is that the benefit is only payable should you survive. This is the reason a survival time is written into the insurance contract. Some insurance providers have a survival time of just 15 days while others require at least a month. To cover this anomaly you can have your life insurance and critical illness insurance combined into the one policy with some insurers.
Some of the main requirements for a payout when it comes to critical illness insurance include:
- Diagnosis of a covered condition. The conditions covered are listed in the product disclosure statement (PDS) of your policy. You can either receive a full or partial pay-out, depending on the condition.
- Your diagnosis occurs after the exclusion period. This is typically after 90 days from when you first purchase your policy.
- You survive the illness through a defined period. This is typically set at two weeks from when you are diagnosed with the illness.
Note: Check your PDS for the specific requirements of your insurer.
Percentage of sickness and accident claims that are paid out
Data shows a slight decrease in sickness and accident claims:
|Year||Accepted claims (%)|
Figurers are taken from Code Governance Committee's General Insurance Data Report 2014-2015.
Why are less claims being accepted by insurers?The core reasons for less illness claims being paid out include:
- Pre-existing medical conditions Many policies will not cover illnesses that arise from pre-existing medical conditions.
- The exact illness is not covered. Most critical illness policies will have a set list of what conditions are covered. Make sure you check your product disclosure statement (PDS).
- Non-disclosure. Your claim can be declined if you fail disclose a pre-existing medical condition.
Critical illness insurance is a policy that pays a lump sum in case of serious illness so that you can concentrate on recuperation instead of finances.
Common features include:
- Cover for common critical conditions and illnesses. Some policies have coverage for up to 60 different illnesses. If you receive a diagnosis you can begin the claim process.
- Access to specialist doctors or additional information. Some brands will also provide access to specialist medical personnel.
- Lump sum payment. This can range from $20,000 to $100,000 depending on the illness.
- Financial planning. Some brands will reimburse financial planning up to $5,000 so you can plan to use your lump sum payout.
Additional features can be added that increase the benefits of the policy, such as:
- Wider range of coverage. At higher premiums, the range of covered conditions increases to include things like organ failure, HIV contracted through work, intensive care or loss of senses.
- Death benefit. A benefit payout of up to $5,000 may be awarded if there is a death within 14 days of suffering a critical condition.
- Insurance buy back. Insurance will be automatically restored to the original amount 14 days after making a claim and can be used for a second critical condition.
- Child support benefit. Added coverage for your children.
Critical illness insurance can feel like quite a steep additional cost, but having it in your back pocket could save you a lot of money in the future if you unexpectedly fall seriously ill. Firstly, it can help you keep your household in order while you are getting better from an illness or receiving treatment. This means you will be able to cover the costs of bills, childcare and groceries. It can also help you pay for expenses like mortgage payments or rehabilitation if you don’t have other coverage.
Consider this as an example. If a person takes out a large mortgage for a property and then suffers an illness and cannot work, they may not be able to afford the repayment costs. The repayments can start to mount up, and if the individual is unable to return to work, the property can go into foreclosure. Critical illness insurance allows you to protect your assets if you are ill and unable to work. This is why its important to really think about how much cover you would need if you became unwell.
- Lump sum benefit paid for defined conditions
- Cover for up to 60 illnesses depending on the policy
- Free child cover is offered on some policies
The important details when it comes to critical illness cover
Read on for an in-depth understanding of critical illness cover
While it may seem subtle, critical illness insurance and TPD insurance (total permanent disability) are two different types of policy.
|Critical illness insurance||Total Permanent Disability insurance.|
|What is the purpose of cover?||In the event of serious illness or injury, critical illness insurance pays out a lump sum that can be used by the individual to pay debts or medical bills, make home modifications or be used as an income. This type of insurance is designed for individuals who suffer a health setback and are unable to return to work for an extended period.||A TPD policy pays out lump-sum benefit in the event of permanent disablement with the inability to return to work. As with critical illness insurance, the payout can be used for expenses or as an income.|
|Sum insured||Typically up to $5 million (less than a TPD payout)||Typically up to $10 million (higher payout than critical illness insurance)|
|Is death cover included?||Yes, with some brands.||Yes, with some brands.|
|Policy options||Inflation protection, premium freezing, financial planning and child support benefits.||Inflation protection, partial disability benefit, premium freezing, choice of premium structure and financial planning.|
|Option through super?||No||Yes|
|Pros||Combines well well with other plans and can include different premium structures. Covers a large range of medical conditions.||It's often possible to pay TPD insurance premiums from a superannuation plan.|
|Cons||Waiting period until the benefits can be used, an exclusion period, and premiums can be more expensive compared to other types of insurance.||There is a need to meet a specific definition of disablement in order to receive a benefit. Additionally all policies will convert to a modified status after the age of 65 or 70.|
Below is the maximum sums insurable on a sample policy that offers critical illness, TPD, income protection and death benefits.
|Benefit||Maximum sum insured|
|Death cover||$15 million|
|Total and permanent disability||$6 million|
|Critical illness||$3 million|
|Child critical illness cover||$300,000|
A critical illness exclusion period, also referred to as a qualifying or waiting period by some brands, is a time frame during which claims will not be paid. The period can begin from:
- The start of your policy
- The date you apply for an increase in coverage
- The most recent state that the policy was reinstated
How long should an exclusion period be?
An exclusion period is usually 3 months (90 days) but it can be as high as 6 months for some conditions. As an example, most types of heart surgery or stroke have a 3-month exclusion period, whereas forms of malignant cancer can have a 6-month exclusion period.
|Critical illness||Exclusion period|
|Coronary Angioplasty||3 months|
|Heart attack||3 months|
|Malignant cancer||6 months|
Note: This is a rough indicator and not indicative of an actual policy
The survival period refers to the time period after you are diagnosed before you can be paid out.
Why is there a survival period?
The reason behind a survival period is because critical illness cover is designed to pay you out if you survive a traumatic event (as opposed to a death benefit). Life insurance policies typically enforce survival period of two weeks.
Premiums paid for the insurance are not tax-deductible, however the benefits paid from a claim are tax-free. The reason for this is that in comparison to something like income protection insurance which replaces income, critical illness insurance pays out a lump sum and is therefore exempt from capital gains tax.
Consult the terms and conditions for your plan for a full list of circumstances, but be aware that your policy will end if:
- The policy is cancelled.
- You are paid out the full amount of insurance benefits and don’t have a buy-back option. Some policies can also be reduced to zero by other insurance extension benefits.
- The life insurance coverage that the critical illness insurance is attached to ends.
- Non-disclosure. That is, if you fail to disclose important details when you apply e.g. a pre-existing medical condition.
- Premiums are not paid.
- The termination date is reached. This can be a part of the policy or a result of age.
- A fraudulent claim is made.
- The individual dies.
Before you buy
Instances where benefits may not be paid include:
- A claim being made within the 3–6-month exclusion period
- An injury that is self-inflicted or the result of attempted suicide
- If the sickness or injury started or was diagnosed before the insurance was purchased
- Illnesses that do not qualify for benefits. Check your policy for a full list of covered illnesses
- An added cost. If you’ve been looking at general insurances, you may find that critical illness insurance is added in as an extra, however, it is also added at an extra cost. Therefore, you need to consider whether this is an extra you really need in light of your other insurance protection, or whether you are going to be over extending your finances to pay for this extra insurance.
- Pre-existing conditions. If you are already in poor health, or you are a smoker for example, then you may have to pay much higher premiums, if you can secure any cover at all. Therefore, if you are already suffering a critical illness, you may not be able to take out critical illness insurance as you won’t be eligible to claim for a pre-existing condition.
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