Special Communique - Trauma cover 101*
Trauma cover is all about supporting your recovery from a serious illness – helping you afford the treatment of your choice and allowing you to make necessary changes to your lifestyle.
Trauma cover pays you a lump sum in the event of certain types of serious illness or injury. It provides you with a pre-selected amount of money (your sum insured benefit) that you can use to pay out-of-pocket medical expenses, home and/or transport modifications, support your ongoing day-to-day financial needs and take care of your dependants as you recover.
Quantifying how much cover you need is dependent upon your preferences for funding the various potential financial commitments detailed above.
When you are looking at trauma cover, there are three key things you need to understand, so you know what you are covered for, and what that means at claim time:
What medical events you can claim for? – Trauma definitions
How your cover is structured? – Stand-alone or linked
Making multiple claims? – Trauma reinstatement
How much cover should I have?
1. Trauma definitions
Every trauma cover policy comes with a list of definitions that dictates:
what medical conditions are covered by your policy
how severe those conditions need to be for a claim to be paid
what percentage of the sum insured will be paid in the event you suffer one of the covered conditions.
Generally speaking, trauma cover is designed to cover you for severe conditions that are likely to require expensive medical treatment, a significant recovery period and/or force you to make major lifestyle changes.
It is not designed to cover you for minor conditions that require simple or non-invasive treatments.
For example, you may be diagnosed with a skin cancer that has not spread and is treatable in one procedure. Or you may be diagnosed with an aggressive skin cancer that requires chemotherapy or radiotherapy for months. They are both technically ‘skin cancer’ but they are very different in terms of their impact on your life.
You can find the trauma definitions that apply to your policy in the Product Disclosure Statement (PDS). Many of these definitions are now standard across the life insurance industry. It is worth reviewing and understanding the differences between policies to ensure you get the best cover for you and your loved ones.
2. Linked covers
Trauma cover may be purchased as a stand-alone policy or as a ‘linked policy’ connected to Death cover or TPD cover.
Generally, linking policies reduces premiums, but there are implications at claim time. Say you have a $200,000 trauma cover policy linked to a $500,000 Death cover policy. If you make a successful claim on your trauma cover, your Death cover benefit will reduce by the $200,000 paid out (i.e. to $300,000).
Depending on your situation you may be eligible to buy back this extra Death cover at some point, but it is important to note that your Death cover is significantly reduced in the meantime.
3. Trauma reinstatement
A little-known benefit of trauma cover is that you may be able to make multiple claims in your lifetime.
That is because some trauma cover policies offer a trauma cover reinstatement option after a successful claim. A reinstatement option allows you to recommence your policy, typically 12 months or more after a claim has been paid. Typically, a reinstated policy will not cover you for the same medical condition you already claimed on, or a related condition, but it can still cover you for a wide range of other serious illnesses.
Learn more about Trauma insurance and its exclusions in the Product Disclosure Statement, otherwise speak to your AFRM adviser.
4. How much cover should I have?
There’s no “right” amount of trauma insurance cover. The amount of Trauma cover you get is generally a personal decision – how much capital would you like to have injected into the household if a family member suffered a major medical event?
What the funds provided by a benefit payment (a successful claim) ultimately buys you is flexibility in your decision-making – the ability to pursue costly elective medical treatments not covered by Medicare or private health ‒ an ability for the entire family to cease work for a period of recuperation, capital to reduce debt or to acquire a lifestyle asset, such as a holiday home.
Did you know?
Did you know that the Australian Prudential Regulation Authority’s (APRA) latest Life Insurance Claims and Disputes Statistics report for 1 January 2020 to 31 December 2020 confirms that clients who get advice on buying life insurance products are better off at claim time than people who do not get advice on their life insurance purchases.
APRA’s report states: “Generally, Individual Advised business shows higher admittance rates than Individual Non-Advised for the same cover type. This could be due to the policyholder having clearer expectations up front of what is covered by the product, or (related to the previous point) the adviser discouraging the policyholder from lodging a claim that is not covered by the policy.”
Want to know more?
If you would like to discuss any of the content in this article and how it may apply to you, please contact your AFRM adviser direct or email email@example.com.
* Please note, the information in this document has been prepared by Australian Financial Risk Management Pty Ltd (AFRM) ABN 21 001 696 868. AFRM hold an Australian Financial Services License (AFSL) 237186. The information is for general purposes only and has been prepared without taking account of your objectives, financial situation or needs. AFRM recommends that you seek professional advice before acting on any information contained within this document.