How much trauma insurance do I need?
It’s important to have enough trauma insurance so that you’re fully covered, but not too much that you’re overpaying in premiums. Our trauma insurance calculator can help you find the sweet spot.
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With trauma insurance, you'll want to work out how much income you and your family need to cover general living expenses if you have to stop working unexpectedly. Read on for the key questions to address when calculating the right cover level for your needs.
What is trauma insurance?
Trauma insurance is a type of life insurance that pays out a lump sum in the event of specified injuries, illnesses or other medical issues. It pays out for specific health events, such as cancer, heart attacks and strokes. The costs of these events can vary widely, which makes it hard to find a sum insured that will suit every circumstance.
Calculating trauma insurance: Key questions to ask yourself and note down
Before you purchase a policy, there are a few key things to consider:
1. How much cover can I afford?
The first question to ask yourself is how much you can afford, or are willing to pay, in premiums. Any sum insured will naturally need to work within this amount, and it can act as a solid price ceiling for you to work with.
📌 Keep in mind: There are a number of ways that cover can be structured to reduce the cost of premiums. Trauma insurance, for example, can be bundled with a life insurance policy which makes premiums cheaper. The downside to this: if you claim on your trauma cover, your life insurance benefit will be reduced by that amount.
2. What types of insurance do I already have?
The second question to consider is what other kinds of insurance you already have. If you have comprehensive income protection cover, for example, you will likely be able to get your ongoing living expenses covered, and can instead opt for an amount focused on medical expenses and paying off debts.
3. More financial questions to consider
To further help you figure out how much cover you need, ask yourself:
- What are my financial obligations? These are things like kids, living expenses, a partner that depends on you and other day-to-day costs. This is generally your ongoing living costs.
- What are my debts? The last thing you want to do is struggle with debt alongside a serious health issue. Think about your mortgage, any credit card payments and other forms of debt you have, and what kind of payout would be needed to pay them all off – alongside other costs.
- What are my assets and savings? If you have extensive savings you might be able to live off them for a while, while assets that can be liquidated or otherwise used can also help you meet your financial obligations and pay for accrued medical expenses.
- What are my plans for the future? Think about your future goals individually and with your partner too. Specifically, pinpoint the things you are and won't be willing to compromise on. For example, having enough to put your kids through school might be non-negotiable, but a post-retirement trip around the world could fall by the wayside.
How to calculate your cover: 2 key approaches
Weighing the respective likelihoods of different trauma events can help you anticipate costs. It's important to have a sense of:
- What conditions are covered by trauma insurance
- How likely you are to make a claim against each
Fortunately, you don't really need to consider every single one in detail. Trauma insurance covers dozens of conditions, but a small handful account for well over 90% of all claims. Consider these, along with any others that you may be more likely to experience, due to family history or other health conditions.
📝 Top trauma insurance claims
- Cancer: This accounts for more than 62% of trauma claims for men and more than 85% for women
- Heart disease and heart surgery: Almost 20% of men's claims and 3% of women's claims
- Benign brain tumour: Over 5% for men and 3% for women
- Stroke: 3.7% for males, 2.7% for females
- Kidney failure: 0.5% for men, 0.4% for women
Source: Money Management
The vast majority of claims are often accounted for by these conditions. You can choose to calculate your trauma insurance needs in line with these, and the lifetime medical costs typically associated with treatment and care for each.
What's the cost of a traumatic event?
Cost of common traumatic events
Source: Money Management
What other expenses should I consider?
The average trauma insurance policy offers from $100,000 to $500,000 of cover. In the event of a claim, some may be designated for lifestyle changes, for both you and your family.
Here are some things to consider:
- Carer. In some cases you may need to pay for a full-time carer, or your partner may have to give up work to look after you.
- Recovery time. You'll need to take more time off work for some trauma incidents than others. You might want to consider a sum insured that lets you take more time off.
- Discretionary spending. Some people may want to add a discretionary spending buffer, such as taking a trip they've always wanted in case they can't later.
- Income protection gap. Income protection insurance typically pays 75% of your usual income. You might want to calculate a trauma insurance sum that can top up the gap to return to the equivalent of your pre-injury income.
Calculating your expenses
Make sure you add up your expenses as accurately as possible. After all, you don't want to be paying over the odds, nor do you want to find out you're not fully covered at the crucial moment.
✅ Our calculator can help you work out your living expenses, debts, obligations and other important considerations.
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