What are the benefits of bundling life insurance and trauma insurance?
The benefit of having life cover in place to offer financial support to your family may be obvious but have you thought about the financial costs of living with severe medical condition?
Advances in medical technology over the years have meant that people are actually more likely to survive a traumatic event such as heart attack or stroke. In fact, statistics have shown that the chance of surviving one of these events is as high as 80%. The risk of being forced out of work for an extended period of time or indefinitely has seen more and more Australians consider trauma cover as part of their personal protection portfolio.
Most Australian life insurance companies will allow policyholders to now bundle Trauma cover within their life insurance policy, providing a lump sum benefit if the insured suffers a specified condition in their policy. Bundling different types of insurance can be more cost effective and easier to manage than having two separate standalone policies.
Life cover with a linked trauma benefit
Many life policies will feature trauma cover as an additional option to provide a lump sum payment if the insured is diagnosed with one or more serious illnesses that are listed in their product disclosure statement. Such events include cancer, heart attack, stroke, coma, blindness, and loss of use of limbs and/or sight and severe diabetes among other serious conditions. Some policies in Australia will offer cover for more than 50 different conditions.
Reduction of Life Sum-Insured
Most policies will not allow for the trauma sum-insured exceeding that of the sum-insured for the life cover portion of the policy. It is also important to note that any claim payment made for Trauma cover will reduce the sum-insured for the life cover benefit.
As an example, John purchases $800,000 in Life Cover and $550,000 in Trauma Cover as a linked benefit. If John submits a claim for Trauma Cover benefit and it is successful, giving John $550,000, his Life Cover benefit will be reduced by $550,000 leaving him with only $250,000 in Life Cover.
What is the trauma buy-back benefit?
A solution to the reduction of sum-insured for life cover is to purchase the Trauma Cover Buy Back benefit as an additional option on the Life Cover benefit. Available under most life policies in Australia, Buy Back benefit enables the policy owner to repurchase the sum-insured that was paid following a claim for the Trauma benefit.
Most policies will restrict repurchase of the sum-insured to within 30 days from the first anniversary date of the trauma claim payment.
What is double trauma cover?
Another solution to reduction of the life cover sum insured from a trauma claim is the Double Trauma Cover benefit option. Available on most policies, this will ensure that the life cover will not be reduced if a claim is made for trauma. Some policies will also waive future premium payments for life cover.
Built-in benefits that may be available on Double Trauma Cover
- No reduction of sum insured: If Double Trauma becomes payable, Life Cover Sum Insured will not be reduced.
- Waiver of premium: If the benefit becomes payable, the insurer will waive future premium payments that are linked to the life cover portion of the policy.
- Benefit indexation: Benefit will increase each year in line with inflation.
- Chronic Diagnosis Benefit: An advancement of the benefit payment may be provided if the insured suffers a defined medical event.
- Complimentary Family Cover: An insurer may provide a lump sum benefit if the policyholder’s child is diagnosed with a serious illness specified in the product disclosure statement.
- Financial Planning Reimbursement: Benefit paid to cover the costs of financial planning following payment of a benefit under life cover plan.
How is a trauma insurance with life cover quote determined?
There are a range of factors that will be used by life insurance companies to determine premiums payable for trauma and life insurance. It is worth noting that the preliminary quote provided after submission of the applicants general details may increase significantly following the receipt of more details. Premiums are subject to change based on further indicators that may increase the applicant’s level of risk. This will include pre-existing medical conditions and family medical history.
Some common factors that will be assessed by insurers when assessing insurance applicants:
- Age: Older applicants will pay more than younger applicants that are less likely to present greater health risk.
- Smoking Status: Smokers will often pay more than double in premiums to non-smokers.
- Family history: Family medical history is an important factor for underwriters to consider as there a number of conditions that have strong genetic predisposition such as diabetes, heart disease, mental illness, some cancers and kidney disease.
- Medical Conditions: Existence of pre existing medical conditions may lead to the insurer placing some exclusions on the policy or applying a premium loading. Insurers will consider the existence of conditions in relation to other risk factors that are present.
- Occupation and pastimes: The applicants occupation or pastimes may lead to the insurer applying an additional premium loading if they are deemed to increase the chance of death or suffering a specified condition.
This is by no means an exhaustive list of what will be taken into consideration by an insurer during the underwriting stages. People should also be aware that each insurers criteria for underwriting applicants is different and just because one insurer knocks back your application does not mean that they all will. There are literally hundreds of different policy options available to applicants in Australia, resulting in great competition among providers to offer competitive premium rates. Providers are often willing to adjust policy terms and conditions.
How can I save by bundling life cover and trauma insurance?
Bundling policies can save applicants being charged multiple fees that may be applied on separate standalone policies. These could include;
- Policy fee: most insurers will charge an annual policy fee regardless of how many plans, benefits or policies have been purchased by the insured. Policy fees are generally between $70-$100
- Stamp duty: there may be stamp duty payable on each policy Stamp duty rates that are applicable can vary between states and territories.
Applicants looking to take out life and trauma cover should weigh up both the benefits and disadvantages of having bundled cover as oppose to two standalone plans. While the savings and convenience offered by bundled plans may be obvious, standalone plans may be able to provide greater flexibility and a more comprehensive level of cover. It is critical for anyone looking to take out bundled cover to consider both buy back benefit and double trauma benefit as an additional option to ensure that they have an adequate amount of cover in place following a trauma claim. An insurance consultant can offer key advice in what options are suitable for your situation.