Trauma Insurance (Critical Illness Cover)

What trauma insurance pays for

Trauma cover pays a lump sum on diagnosis of a specified condition, as defined in your policy, provided you meet the policy terms (for example, surviving a short period after diagnosis, often 14 days). You do not have to be unable to work to receive the payment.

The money can be used however you choose. People commonly think about using it for:

• Medical and treatment costs not covered by Medicare or private health insurance
• Time off work for you or a partner during treatment and recovery
• Mortgage or rent repayments for a period
• Rehabilitation, specialist care or home help
• Reducing debts to ease pressure on the household

Common conditions covered

Trauma policies list the conditions they cover, and each condition has its own definition. The number of conditions and how they are defined vary between insurers and policies. The most commonly claimed conditions generally include:

• Cancer (with specific definitions for different types and stages)
• Heart attack
• Stroke
• Coronary artery bypass surgery

Many policies also cover a wider range of conditions, such as kidney failure, major organ transplant, multiple sclerosis, Parkinson's disease and loss of limbs or sight. Some policies include partial payments for less severe conditions, such as early stage cancers. Because definitions differ, the detail in your Product Disclosure Statement matters more than the number of conditions listed.

Why trauma cover can only be held outside super

Unlike life cover, TPD and income protection, trauma cover cannot be held inside superannuation. This is because super rules only allow benefits to be released when a person meets a condition of release, such as death, terminal illness, permanent incapacity or temporary incapacity. A trauma benefit is paid on diagnosis, which does not match these conditions, so trauma cover has been excluded from new super arrangements since 2014.

This means trauma premiums are paid from your own cash flow. Premiums for trauma cover held personally are generally not tax deductible, and benefits are generally paid tax free, although this depends on individual circumstances. It can be helpful to check with your accountant or tax professional.

Some insurers allow trauma cover to be linked to life cover held outside super, which can affect premiums and how benefits interact. Your policy will explain whether this applies.

How trauma differs from income protection and TPD

Trauma vs income protection

Income protection pays a monthly benefit while you are unable to work. Trauma pays a lump sum on diagnosis, whether or not you can work. Some people recover from a serious illness and keep working, in which case an income protection claim may not apply, but a trauma claim could.

Trauma vs TPD

TPD (Total and Permanent Disablement) cover pays if you are unlikely to ever work again. Trauma cover pays on diagnosis of a specified condition, even if a full recovery is expected. The two cover different situations, and some people hold both.

Together with life cover, these make up the four main types of personal insurance. Each one responds to a different event, which is why people often look at them as a set.

Things to consider when reviewing trauma cover

Trauma premiums tend to rise with age, and stepped premiums can increase more noticeably from the mid 40s. When reviewing a trauma policy, people often look at:

• Whether the sum insured still reflects their likely costs and time off work
• How key conditions such as cancer, heart attack and stroke are defined
• Whether partial benefits are included
• Whether the policy is linked to life cover
• How premiums are likely to change over the coming years

Older trauma policies sometimes have definitions or features that differ from those offered today, so it is worth understanding these before making any change. It is generally wise not to cancel existing cover until any new policy has been fully accepted.

How Harbour Life Insurance can help

Michael Shagrin is a life insurance specialist with over 30 years of experience. He can explain the definitions in your current trauma policy, compare your cover across a range of insurers and provide options for you to consider. Read about our Insurance Review process or our claims support. Our service is free to you because Harbour Life is paid by the insurers.