Trauma Insurance – How Does It Work?

Trauma insurance can cover you for serious medical conditions. Find out how trauma policies work from application through to claims and payout.

Trauma insurance (also known as critical illness insurance) provides a lump sum payment if you are diagnosed with a serious illness or injury.

How does trauma insurance work?

Here's a basic summary of how trauma insurance works. If after you take out a policy:

  1. You develop a serious illness or medical condition that is covered by your policy
  2. Trauma cover provides a one-off payment that can be used to cover your medical costs, large debts such as a mortgage, and the cost of home modifications and professional care.

When am I eligible for a trauma payment?

To be eligible for a trauma insurance payout, your illness or injury must be one that is covered by your policy and while such conditions vary with insurers, the most common are cancer, heart attack, coronary bypass and stroke. The condition must also occur after what's known as the exclusion period.

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Applying for trauma insurance: Do I buy it standalone or with life insurance?

Trauma insurance can be purchased as a standalone product or as part of a plan, often bundled with life insurance and TPD insurance. There are advantages and disadvantages to both options. As part of a plan, it can save you money on the policy fee and stamp duty charges that a standalone product would incur.But while it could save you money in the short term, it may not provide as comprehensive a level of cover as a standalone policy, in which case you might need to consider additional cover options such as Buy Back and Double Trauma benefit to ensure you have adequate trauma protection.

What do I do if I'm diagnosed with an illness

To claim on your trauma insurance policy, you will need to:

  1. Notify your insurer of your intention to claim
  2. Complete and return the claim form along with all necessary documentation
  3. Wait while your claim is being assessed and cooperate with any requests for additional information
  4. Receive your benefit upon approval of your claim.

If you are deceased or unable to claim yourself, your beneficiary will need to carry out this process on your behalf.

How am I paid out if I'm diagnosed with a serious illness?

If you suffer a severe illness or injury and make a claim on your trauma insurance, you will be required to provide your insurer with written proof of your diagnosis and may have to undergo further medical assessment by doctors appointed by your insurer. Once your claim is approved, your trauma insurance benefit will be paid to you in a lump sum, usually directly into your nominated bank account.

When will I not be paid?

Typical exclusions that apply to trauma insurance (circumstances in which a benefit will not be paid) include:

  • Death from suicide within the first 13 months of starting or reinstating cover
  • Any intentional self-inflicted trauma event
  • Any event not considered to be severe
  • Any event that is not listed in the policy (the type of illness or injury will depend on the insurer)

Can I just buy a policy if I know I’m about to fall ill?

If consumers were able to take up insurance immediately prior to needing it, insurance companies would soon go broke, as no one would insure themselves for any longer than the period of their illness or injury. Insurers guard against this (and protect the interests of their long-term customers) by including a 90-day exclusion period in their policies. This means that any event occurring within 90 days (three months) of the commencement or reinstatement of a policy will not be covered, which removes the incentive for purchasing short-term cover when needed.

Do all trauma insurance policies cover the same conditions?

Most claims for a critical illness or injury are for either heart attacks, strokes or cancer, but there are others that may vary between insurers. This is why it’s essential you compare your cover, or speak to an adviser about a policy suitable to your needs.

You have two types of policies to choose between when signing up for trauma insurance: a standard policy and comprehensive policy. Most insurers cover the same medical conditions but there is a chance it will vary due to different definitions.

Conditions that are covered

Here’s a list of what’s usually offered under standard and comprehensive policies.

Standard policyComprehensive policy
The cheapest type of policy. It covers between 30–44 critical conditions, including the following.

  • Cancer
  • Heart attack
  • Stroke
  • Brain damage
  • Down’s Syndrome
  • Time in intensive care
Offers the same cover as a standard policy, but provides cover for another 15 conditions. Here are some of them.

  • Melanoma
  • Diabetes complications
  • Partial blindness
  • Partial loss of hearing
  • Carcinoma
  • Osteoporosis

One step you can take to find out what medical conditions are covered by your policy is reading your Product Disclosure Statement (PDS). This is the outline of your contract, and includes all included costs, benefits and exclusions. All insurers provide a PDS when you sign up for a policy.

The video guide to trauma insurance

How do I compare trauma insurance quotes?

Trawling for the best trauma insurance quote can be a time-consuming exercise, but it’s critical to do your homework to find the best policy to meet your medical and budget needs. When searching for critical illness cover, you can jump online to see what’s on offer. This can be done by visiting the websites of insurance companies, brokers and financial planners.

There are a number of factors to think about before you sign on to a policy. Here’s a guide on what sort of questions you should weigh up.

What are your included benefits?

It’s important to compare what medical conditions are covered by insurance companies. Not all funds offer the same benefits for certain illness or injuries under trauma insurance, so you need to understand what is included, and if there are additional options that could enhance your cover.

Here are some built-in benefits to look for when comparing policies:

FeatureWhat's covered?
Funeral Advancement Benefit
  • Pays a lump sum to cover funeral costs.
Terminal Illness Benefit
  • Lump sum in the advent of a terminal illness diagnosis.
Future Insurability benefit
  • You can increase your cover without medical evidence.
Waiver of Life Premium
  • Pay no premiums if you become totally disabled.
Interim Cover
  • Provides interim cover for an accident while your claim is processed.
Premium Freeze
  • You can freeze premiums at the previous year’s amount, so it doesn’t increase with your age.
Accommodation Benefit
  • Pays a benefit if you are bedridden, over 100km from your home and need a family member on hand.
Financial Planning Reimbursement
  • Reimburses costs of financial planning advice when you’re paid a benefit under life insurance.
Benefit Reimbursement
  • An option to lift your cover each year in line with the CPI or another agreed percentage.
Suspension Cover Benefit
  • Here you can suspend your cover temporarily for 12 months due to financial trouble.

What are the optional benefits of the policy?

Insurers may offer you other optional benefits to give you more comprehensive cover at an additional cost. There is a wide range of extras insurers offer, but the following are the most common.

Optional benefitWhat's covered?
Accidental Death Benefit
  • A benefit is paid to your family if you die from an accident.
Business Future Insurability
  • Here you can increase your business cover due to an event, and without added medical documentation.
Needlestick Cover
  • This benefit aims to compensate medical professionals if they suffer a needlestick injury on the job.

It’s essential that you’re clear on the benefits included in your policy, and any extras that could enhance your cover. By doing this, you’ll have peace of mind that the policy is right for you and your family.

What type of premium is offered?

Your premium is the annual payment for a trauma insurance policy. It’s made up of three elements: your base fee, policy fee, and sometimes stamp duty may be applied. Though stamp duty isn’t normally linked to life insurance, it can be applied to other policies like income protection.

You have the choice of three options to help control the cost of your premium:

  • Stepped premium. This is the cheapest option initially, but your cost increases as you age.
  • Level premium. More expensive at the beginning of your policy, but your premium won’t increase as you get older.
  • Hybrid premium. A combination of stepped and level premiums. It starts out as a stepped premium but after a certain length of time, it changes to a level premium.

Should I choose stand-alone or combined cover?

Another point to consider is whether you want a stand-alone or combined trauma insurance policy to help control the cost of your cover.

Combined trauma cover

This provides the same amount of cover as stand-alone policies. The advantage is you can link policies together under one premium, but any claim made will impact your benefits by the same amount in all bundled policies.

You can link your trauma insurance with your life insurance and TPD insurance, but income protection policies are normally only offered as stand-alone cover.

How will personal factors influence my premium?

There are a number of personal factors that will impact the cost of your policy. Here’s a list showing what insurers look at.

  • Your age. Life insurers use a mortality table to assess your age. So the older you are, the higher the premium you’ll pay.
  • Do you smoke? Smoking will be taken into account when starting a trauma insurance policy, as there is an increased risk of suffering from conditions like lung cancer.
  • Do you suffer a medical condition? You must be honest about any medical condition you might be suffering, and one that could lead to a critical illness. If you are dishonest the company can reject any future claims.
  • Lifestyle choices. Generally, pastimes and chosen activities are covered, although extreme sports like sky diving may be excluded.
  • Gender. You’re gender can impact your premium depending on your age. For instance in your 30’s women are at greater risk of having
  • Occupation (conditional). It’s unusual for your employment to impact your policy, but some insurers take this into account. This could include working a dangerous job.

How much trauma insurance do I need?

You never know what curve balls life will throw your way, so it can be hard to calculate the amount of critical illness cover you’ll need. There are many unforeseen treatment and rehabilitation costs that follow a trauma or critical illness, so you need to understand how becoming a sufferer will impact your individual circumstance or family situation.

Think about your individual circumstance and family

here are personal and family factors you should consider when assessing how much trauma insurance you need. Here are some points to factor in.

  • Affordability and income. Your policy depends on what you can afford. Weigh up how much you earn against your debts.
  • Entitlements. You may also have other government schemed benefits like sick leave and workers’ compensation that could fill some gaps with your policy.
  • Your partner and other dependents. Your spouse or partner is the individual likely to be your carer, so take into account lost income on their behalf when deciding on the cover you need. It’s also important to think about future finances for your children like university fees.
  • Should I link any other policies? It could be a good option to link a salary continuance policy with your trauma insurance to provide up to 75% of your monthly income in the advent of a critical illness or injury.

Levels of cover available

You have a choice between two types of trauma insurance policies to ensure you’re covered for the costs linked to one or more conditions. This is achieved through a standard or comprehensive policy.

  • Standard policy. The more affordable option. It takes into account 30–44 critical illnesses like heart attack, stroke and cancer.
  • Comprehensive policy. More expensive but comprehensive. It covers the same conditions as a standard policy, and also around 15 other conditions like melanoma, diabetes complications and brain damage.

The costs of serious illnesses

Statistics show that suffering a trauma can amount to tens of thousands of dollars in someone’s lifetime. A study conducted by Access Economics in 2009 revealed some staggering results.

Having a heart attack  

  • In 2009, heart attacks in Australia cost around AUD$15.5 billion.
  • In 2003, the average cost to a sufferer was estimated to be around AUD$18,000 a year, and AUD$44,000 during their life.

Suffering a stroke

  • In 2012, strokes totalled AUD$5 billion, with costs spent on productivity, medical treatment and carers.
  • In that same year it was estimated stroke sufferers will spend around AUD$57,000 in medical and rehabilitation expenses during their life.

Cost of cancer

  • In 2011, Cancer cost the community AUD$3.8 billion, while in 2006 a family’s financial cost was AUD$47,000 a year.
  • It’s estimated a male smoker suffering lung cancer could see costs of AUD$200,000 for his medical treatment and rehabilitation.

Cost of diabetes in Australia 

  • Around 1.7 million Australians suffer from diabetes, and around 280 others develop the disease every day.
  • Diabetes costs the community around AUD $14.6 billion a year.

Do I need a comprehensive policy?

There are some alarming statistics surrounding the likelihood of suffering conditions covered in a comprehensive policy. Australians live an outdoor lifestyle, and the increased exposure to the sun could mean you’re more at risk of skin conditions like melanoma.

Here are some statistics compiled by Cancer Australia.

  • In 2012, it was estimated that there were 12,036 cases of the skin disease.
  • In 2013, there were more than a thousand deaths related to melanoma.
  • In 2016, the number of sufferers is estimated to be around 13,283 people.
  • There’s a higher risk of contracting melanoma as you age.

Severe diabetes is covered in both types of policies, but a complication is normally only covered in a comprehensive policy. The disease poses a huge challenge to Australia’s healthcare system. Costs to the community and sufferers are huge, and the likelihood of contracting the condition is on the rise.

ASIC advice for buying trauma insurance

The Australian Securities & Investments Commission (ASIC) offers the following advice to consumers purchasing or comparing trauma insurance

  • Look for restrictions that might limit your cover such as those related to age, maternity leave, casual or part-time work and dangerous occupations.
  • Make sure the policy is fully indexed so that benefits and premiums keep up with inflation.
  • Be sure to answer all questions honestly in your application and declare any pre-existing medical conditions, to avoid having your claim rejected in the event of a trauma.
  • Discuss trauma insurance with your partner and consider covering them as well, as a trauma suffered by either of you would have the same impact on your lifestyle and income.
  • Know how much cover you will need by considering your financial assets and obligations both now and in the future.
  • Before purchasing a policy, read the Product Disclosure Statement (PDS) carefully so that you fully understand what is covered and what it will cost you.

Why do Australians buy trauma insurance?

Trauma insurance is an insurance product that is becoming more attractive among Australians especially to those who want to secure their future and get protection coverage against serious illnesses. This type of insurance provides you the peace of mind of having a financial backup in case you become injured or diagnosed with an illness that is covered by your policy. With this financial backup, you get better security from the financial pressure caused by your condition. This can help you concentrate on your recovery with less burden to you and your family. The policy holder can claim a lump sum amount once eligible to make a claim.

How is it different to life insurance?

The good thing about this insurance is the fact that it gives you financial freedom in facing a major medical crisis. Unlike other types of life insurance where claims can only be made upon the death of the insured member, trauma insurance benefits are paid while the insured member is still alive. The amount of money received from the proceeds of your claim can be used not only to finance your medication but to cover you for other expenses and can substitute your income while on your way to recovery.

How is it different to income protection?

Unlike income protection, anyone can take out trauma cover even if they do not belong to the workforce. This is more recommended to homemakers and those not engaged in a regular employment. They can apply for trauma insurance and enjoy the protection and benefits from their insurance claims which they can use to pay off debts, seek for medical cure, pay for their medical expenses and meet other financial obligations while recuperating from their condition. Trauma insurance can give you coverage in around 40 kinds of illnesses as specified by the insurers. The legal claim from your benefit will be based on the specific illnesses covered by your insurance policy. It is therefore best to assess your risk factors and choose a trauma insurance that covers the medical conditions you may likely develop in the future.

Trauma insurance offered online

In order to find the best trauma insurance quote you would be well advised to search through the many life insurance company offers online. Life insurance companies handle trauma insurance and can have the cover added to your existing life insurance policy or offer the same cover as a stand alone policy. It is usually cheaper to have the trauma cover added to a life insurance policy but this is not always the case. You will have to look around to see what is offered that best suits your particular circumstances.

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Coverage is the amount of money that you will be paid in the event of a claim. An insurance consultant can help you determine an appropriate amount. Calculator
Provides a lump sum payment if you become totally and permanently disabled and are unable to return to work.
Provides a lump sum payment if you suffer a serious medical condition. Cover can be taken out for 40-60 medical conditions depending on the policy you choose.
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William Eve

Will is a personal finance writer for specialising in content on insurance. While he cannot give personal advice to clients, Will enjoys explaining the intricacies of different types of protective cover to help individuals and businesses find affordable cover that won't leave them underinsured.

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