Critical illness insurance can cover you for a range of serious illnesses. See what you’re covered for, how it works and what you need to consider before purchasing.
Critical illness insurance (also known as 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 for your family. The maximum available payout for critical illness insurance is $2 million.
Serious medical conditions typically include strokes, cancers, heart attacks and more. The exact conditions that are covered will be listed in the provider's product disclosure statement (PDS).
Critical illness insurance can be bought as a standalone policy or as part of a life insurance policy.
What does critical illness insurance cover?
Critical illness insurance typically provides cover for the following illnesses:
Cancers
Coronary artery angioplasty
Coronary artery bypass
Heart attack
Stroke
Three vessel coronary artery disease
Accidental HIV infection
Alzheimer's disease
Aplastic anaemia
Bacterial meningitis
Blindness
Cardiomyopathy
Chronic liver failure
Chronic lung disease
Coma
Dementia
Diplegia
Heart valve replacement
Hemiplegia
Kidney failure
Loss of hearing
Loss of independence
Loss of limbs or sight
Loss of speech
Major brain injury
Major burns
Major organic transplant
Motor neurone disease
Multiple sclerosis
Muscular dystrophy
Paraplegia
Parkison's disease
Pulmonary arterial hypertension
Quadriplegia
Surgery to aorta
Terminal illness
Viral encephalitis
To be sure of what your policy covers, read the product disclosure statement (PDS).
How to buy critical illness cover
There are 3 things that make up the 'how' of buying critical illness insurance.
Who you buy it from. Critical illness insurance can be purchased directly from the insurer or it can be purchased via a broker.
What type of policy you buy. It can be purchased as a standalone policy or as part of a life insurance policy. It's worth considering both options to see what offers the best value for money for you.
The way you pay for your premiums. Critical illness insurance can be paid for in two different ways:
Stepped premiums: This option means your premiums will be recalculated every year at renewal time, meaning they'll typically increase each year. They will increase more and more as you age.
Level premiums: This option means you'll pay a higher premium when you first take out the policy but increases aren't based on your age so they tend to happen more slowly over time.
Whichever you pick will determine the cost of your premiums both today and in the future so it's important to understand the pros and cons of stepped and level premiums.
What to look for when comparing critical illness policies
Maximum cover: This ranges from around $50,000 to $2,000,000 so it's worth checking how much cover you need and which insurer can support this.
Maximum entry age: It's worth comparing your options here because some policies have a maximum entry age as young as 54. Others have entry age maximums of 74 years-old.
Expiry age: To know how long a policy can serve you, check what the expiry age is. For some policies, this is as young as 65. For others, it won't expire until you're 80 years-old.
Funeral cover: Some critical illness insurance policies include cover for funerals too. This can be up to around $5000.
Our expert says
"It's wise to check what the cost of the standalone policy is in comparison to a life insurance policy that includes cover for critical illness. This is because you can be covered for a heap of extra benefits without having to dish out a whole lot of extra money. It's worth checking because there might be decent value for money in it."
Critical illness insurance has a lower expiry age in comparison to life insurance policies. This is disadvantageous because once your policy expires, you're no longer covered and there's no refund of premiums paid.
You'll also be covered for a very specific set of illnesses and if your particular illness doesn't meet the criteria then you may not be eligible to claim.
A good place to start is with your debts. Take stock of all remaining debts, like your mortgage, to understand what your family would still owe money on and use this amount as a baseline. From there, you can add in costs for things like ongoing expenses, general financial security and medical costs for your rehabilitation.
Critical illness insurance pays out in the event of a serious illness or injury. A total and permanent disability policy pays out in the event of permanent disablement. Permanent disablement is not essential for a critical illness policy to pay out.
Also, TPD policies tend to have higher benefit limits than critical illness policies.
Peta Taylor is a publisher at Finder, working across all of insurance. She's been analysing product disclosure statements and publishing articles for over 2 years. Peta is passionate about demystifying complex insurance products to help users make well educated decisions with confidence. Peta is part of Finder's insurance awards team and works alongside editorial and insights experts to bring users the best insurance products every year. See full bio
James Martin was the insurance editor at Finder. He has written on a range of insurance and finance topics for over 7 years. James often shares his insurance expertise as a media spokesperson and has appeared on Prime 7 News, Insurance News, 7NEWS and The Guardian. An experienced journalist, James' work has featured in publications including The Irish Times, Companies100 and In Business. He holds a Tier 1 General Insurance (General Advice) certification and a Tier 1 Generic Knowledge certification, both of which meet the requirements of ASIC Regulatory Guide 146 (RG146). See full bio
James's expertise
James has written 196 Finder guides across topics including:
Trauma insurance pays out for specific health events, such as cancer, heart attack and many more. The costs of these events can vary widely, which makes it hard to find a sum insured that will suit every circumstance.
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